Activist investor Elliott Investment Management has sent a sprawling five-page letter to Southwest Airlines shareholders in which it lays out its arguments for ousting the Dallas-based carrier’s senior leadership team in favor of an outside team of “fresh” executives.
Elliott quietly acquired an 11% stake in Southwest before going public in June to demand sweeping changes to revive the airline’s flagging financial performance. As an activist investor, Elliott’s purpose in investing in companies is to demand big changes.
Central to Elliott’s long list of demands is getting rid of Southwest’s incumbent CEO, Bob Jordan, and chairman and former CEO, Gary Kelly, who are accused of overseeing “years of mismanagement” and “stubbornly” adhering to antiquated business practices.
Earlier this month, Elliott announced plans to install its own pick of 10 new board members on the Southwest management board, but the airline has sought to dilute Elliott’s involvement with the board by adding new directors of its choosing.
The two sides are set to meet on September 9 to discuss a “collaborative resolution,” but Elliott now says Southwest must be willing to discuss leadership change if it expects any progress to be made at these talks.
“Southwest’s Board still seems unable to grasp how profound the Company’s credibility deficit with investors has become,” Elliott warned in its open letter to shareholders. “Southwest’s investors should not trust a board-refreshment process led by its incumbent leadership,” the letter continues.
Elliott has yet to outline exactly what changes it would make to Southwest’s business strategy to revise the airline’s fortunes, but the letter set out a vision for Southwest of becoming “the best low-cost airline in the United States.”
Under the leadership of Jordan and Kelly, Elliott says Southwest has been “outmaneuvered by competitors that have continuously adapted and improved their product offerings to match customer preferences.”
Last month, Southwest hastily announced changes to its product offerings, including introducing assigned seating for the first time in its history, along with extra legroom seats.
Elliott described the changes as “too little, too late” and said these were the kinds of improvements that should have been made a decade ago.
Southwest’s leadership team and serving board members continue to resist Elliott’s interference as it sees it. In July, the board approved a so-called ‘poison pill’ to frustrate any attempt by Elliott to increase its stake in Southwest.
The ‘poison pill’ will kick into effect if any one investor acquires a 12.5% or more stake in the airline. It will allow other shareholders to buy shares in the company at a reduced price, thereby diluting Elliott’s stake in Southwest.
Assigned seating is NOT an improvement.
Agreed, the flexibility that comes with open seating at boarding, avoiding the dreaded center seat , is virtually elimnated with any change in flight plans during the last few days. Open seating = fexibilty. I.e. JetBlue
The majority of the flights I’ve been on in the last two years are 100% full. I don’t know what happened at Southwest, they used to be the only airline I know of that wasn’t crying about being broke. If 80% of SWA customers want assigned seating, why don’t they fly another airline. SWA is not always the cheapest. They just have employees who care about their customers. I hate seeing an investor take control. All they are after is a profit no matter what it takes. SWA is a good airline. LEAVE IT ALONE