Janice R. Andrews
With Southwest Airlines, Elliott Investment Management has begun a proxy war with the goal of gaining ten of the fifteen board members. The activist hedge fund, which has amassed an 8% stake in the airline, is pressing for big reforms to improve its underperforming performance.
Dallas-based Southwest Airlines has underperformed when compared to rivals like United Airlines and Delta Airlines, with its shares declining by 12% this year. The airline industry has seen difficulties, but Southwest’s decline in performance has been more noticeable. Analysts expect Southwest may declare losses in the third quarter after the airline’s operational margins in the second quarter lagged behind those of its main rivals.
Elliott describes this action as “a crucial step toward implementing the urgent changes that Southwest needs.” The company has made no secret of the need for a change at the top, having previously demanded the dismissal of Chairman Gary Kelly and CEO Robert Jordan as well as Southwest’s poor performance relative to the industry. Elliott emphasizes the need for change, pointing to the airline’s ongoing downturn since the fund initially made its planned reorganization public.
Southwest has admitted that it needs to get better. The airline revealed intentions to increase income last month, including charging a premium for assigned seating and more legroom on some of its flights. In September, CEO Robert Jordan is anticipated to provide additional information regarding these projects.
Senior executives from JetBlue and Ryanair are among the seasoned business leaders on Elliott’s proposed board of directors, which also includes the former CEOs of Air Canada, WestJet, and Virgin America. Elliott has a history of forcing businesses to change their management. Starbucks, for instance, recently removed its CEO as a result of Elliott’s influence. This action follows that trend.
There may soon be a special shareholder meeting to vote on the proposed board members.
