Elliott Wants to Shake Up Southwest After Building $2 Billion Stake

The airline industry’s new motto seems to be: We’re all budget airlines now. But when everyone’s fares are cheap, it’s tough on longtime low-cost carriers like Southwest Airlines.

And at Southwest, there’s a loud, unruly passenger coming on board. The activist investor firm Elliott Management has built a $2 billion stake in the airline and is calling for the company’s top brass to deplane as the budget operator struggles. 

Barbarians at the Boarding Gate

Southwest’s most recent struggle came during the 2022 holiday season when its technology systems couldn’t weather a severe winter storm. While other airlines recovered, Southwest had to cancel about 17,000 flights, which cost the company more than $1 billion in losses in addition to a $140 million fine from the Department of Transportation. 

Southwest is also one of many victims of Boeing’s ongoing struggles and will receive far fewer jets from the plane maker this year than it had originally hoped, hampering its ability to expand. In April, it said it would terminate operations at three US airports and one in Mexico, and its costs have gone up because of new labor contracts with flight attendants. Southwest reported a loss of $231 million in this year’s first quarter, and it expects to lose 2,000 employees by the end of the year. 

Elliott Management — which is also trying to shake up SoftBank, Texas Instruments, and Johnson Controls — bowed to Southwest’s storied past, but is asking “What have you done for me lately?”

• With its $2 billion piece of the Southwest pie, Elliott is calling on the company to replace CEO Bob Jordan, revise its board of directors, and conduct a comprehensive business review, The Wall Street Journal reported.
• In a letter sent to the Southwest board, Elliott wrote “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 attention lifted Southwest’s stock by 7% on Monday.

Take a Seat: Of the Big Four US airlines, Delta is the only one to see its share price grow in the last three years (10%). Plenty of Delta’s success can be attributed to its seating options. In 2023, revenue generated from premium tickets jumped 26% from the previous year. 

Southwest’s plan for returning to financial stability is still up in the air, but cribbing off Delta — or really any other airline — might be a solid plan. Southwest flights don’t have assigned seats, but fliers are able to pay extra to board earlier. The airline is considering a switch to different classes of seating to make up revenue. It turns out people will indeed pay more for more when you offer them so little.