Elliott Investment Management Critiques Southwest CEO as Shares Surge

_{^{[Source – reuters.com]}}

Elliott Investment Management, an activist hedge fund, has publicly criticized Southwest Airlines CEO Bob Jordan, blaming him for the airline’s declining fortunes. This criticism comes just hours after Southwest announced an improved outlook for profits and revenue, leading to a 7% increase in its stock price.

Push for Leadership Change

Elliott, led by billionaire Paul Singer, has reiterated its plan to call a special meeting aimed at ousting the current board of directors. The hedge fund is urging shareholders to confirm their ability to vote on all their shares ahead of this meeting. In a statement, Elliott questioned why Jordan, who has been responsible for several years of unsatisfactory financial results, is considered the right leader to implement the company’s recent transformative changes.

In response, Southwest issued a statement supporting Jordan, asserting that Elliott Investment Management has failed to establish a constructive relationship with the airline. The airline accused the hedge fund of attempting to disrupt its recent Investor Day and prioritizing public attacks over the interests of the company and its shareholders.

Shareholder Reaction

Following the announcement of its turnaround plan during an investor meeting, Southwest shares experienced a notable surge, closing at $29.93, a 5.4% increase. The airline raised its revenue forecast for the third quarter, appointed an industry veteran to its board, and claimed that its new business strategy could result in an additional $4 billion in earnings before interest and taxes by 2027.

However, Elliott warned shareholders that the investor meeting would likely consist of familiar themes and promises. The hedge fund pointed out that in 2021 and 2022, Southwest had made similar assertions about profitability enhancements but instead saw significant deterioration under Jordan’s leadership.

Concerns Over Leadership Capability

Elliott stated that extensive discussions with Southwest’s leadership only strengthened its belief that the current management team is incapable of realizing the airline’s potential. Meanwhile, Southwest contended that Elliott had already predetermined its stance before engaging with Jordan and remained inflexible in its demands for a supermajority of the board and an immediate change in CEO.

Elliott has called for major leadership changes within the airline, specifically targeting Jordan and Chairman Gary Kelly. Kelly has announced plans to retire next year following pressure from Elliott.

Board Composition Issues

The hedge fund also criticized Southwest for lacking sufficient industry expertise on its board. In response, Southwest noted that it had added or appointed eight new board members over the past three years. The airline claimed that it had invited Elliott to participate in the board revamp process, but Elliott prohibited its board candidates from meeting with Southwest leadership. Southwest emphasized its willingness to consider Elliott’s director candidates if the board is allowed to meet them.

Planned Business Changes

We plan to monetize every aircraft delivery, says Southwest CEO Bob Jordan

In an effort to address Elliott Investment Management’s concerns, Southwest has begun implementing business changes, including the introduction of assigned seating and premium seats with extra legroom—significant shifts for the nearly 60-year-old airline. However, Elliott Investment Management criticized the timeline for these changes, arguing that the announcement of a multi-year implementation process is inadequate, pointing out that competitors have executed similar changes in much shorter time frames.

Elliott concluded that the lengthy implementation timeline further demonstrates Jordan’s lack of vision and capability to effectively lead these initiatives. As tensions rise between the hedge fund and Southwest, the future of the airline’s leadership remains uncertain, with shareholders awaiting the outcome of the proposed special meeting.