What’s going on here?
Southwest Airlines is gearing up for a major face-off with Elliott Investment Management, which is advocating for significant leadership changes.
What does this mean?
CEO Bob Jordan is rallying, meeting with investors and employees to push back against Elliott’s demands – which he describes as aggressive. Elliott criticizes Southwest for its lagging stock performance and outdated business model, aiming to replace Jordan and Board Chair Gary Kelly and rework nearly two-thirds of the board. Elliott is no stranger to boardroom battles, having successfully ousted CEOs at major firms like Starbucks. On the other side, Jordan defends Southwest’s strategy and emphasizes the airline’s strong reputation as a low-cost favorite among American travelers.
Why should I care?
For markets: A turbulent ride ahead.
Southwest Airlines has faced post-pandemic challenges, with a 23% rise in operating costs and only a 6% increase in unit revenues. Its operating margin has plummeted to 0.2% in the first half of this year from over 13% in 2019. In comparison, Delta and United Airlines posted strong operating margins of 9.5% and 7.4% respectively. Elliott’s involvement may create further market volatility but could push for changes to improve financial performance.
The bigger picture: Shifting skies in aviation.
Elliott points out Southwest’s over-reliance on Boeing, which has faced regulatory and safety issues affecting deliveries. As Southwest plans to end its open-seating policy, add extra-legroom seats, and introduce overnight flights to attract premium travelers, analysts foresee an earnings boost next year. However, Elliott dismisses these measures as ‘too little, too late,’ promising a potential stock price surge to $49 within 12 months if their changes are implemented. The outcome of this boardroom showdown could significantly reshape Southwest’s future operational strategies and its standing in the aviation industry.