Southwest Airlines has had a rocky few quarters, thanks to several mass delays and cancelation events, and now it’s not just the disgruntled customers who are no longer loyal.
A major investment firm is taking a huge stake in the carrier and demanding that changes be made, starting with leadership.
Elliot Investment Management, which announced a $1.9 billion stake in the Dallas-based airline on Monday, penned an open letter to Southwest’s Board of Directors urging shareholders to vote to change the airline’s executive leadership and take operations in a different direction.
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“Poor execution and leadership’s stubborn unwillingness to evolve the Company’s strategy have led to deeply disappointing results for shareholders, employees, and customers alike,” the letter reads. “In addition to negative returns for shareholders, this disappointing financial performance has cost each frontline employee tens of thousands of dollars on average in the form of reduced employee profit-sharing and declines in the value of Southwest stock held by employee retirement plans.”
The firm added that it believes Southwest has “the most compelling airline turnaround opportunity” in the industry and outlined a three-pronged strategy for shareholders to consider: enhance the Board of Directors, upgrade leadership (preferably bringing in leaders from outside of the company), and undertake a comprehensive business review.
In doing so, Elliot predicted, Southwest could reach $49 per share within the next 12 months, which would be a 77% return.
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“While Southwest has a proud history, that history is not an argument for supporting poor leadership and sticking with a strategy that no longer succeeds in the modern airline industry,” the letter said.
Southwest responded to the investment firm in a letter of its own, noting that the company was “carefully reviewing” Elliot’s letter and that it plans to reveal more about its forward-looking strategy during Southwest’s Investor Day in September.
“We are confident that Southwest Airlines has the right strategy, the right plan, and the right team in place to drive long-term value for our Shareholders,” Southwest said.
Southwest rattled customers last month after thousands of flights were delayed due to an internal “technological issue.”
It was the latest snag for the airline’s operations as it looks to cut costs.
The airline had a rough 2023 overall, with a net loss of $219 million in Q4 due to a disastrous holiday season that left thousands of passengers stranded, delayed, or with canceled flights.
Related: Southwest Airlines makes big operational changes after 2024 financial report
“We have not yet delivered on our financial targets,” Southwest CEO Bob Jordan said in an earnings release at the time.
Southwest was down over 10% year over year as of Tuesday afternoon and dropped nearly 5% in a 24-hour period after the release of Elliot’s letter.