Elliott Investment Criticizes Southwest Airlines Execution In Letter, Promises 77% Stock Return Potential

Zinger Key Points
  • Elliott Investment criticizes Southwest Airlines for outdated strategies, boosting stock 7.82% Monday with a call for new leadership.
  • Elliott highlights Southwest’s 50% share price drop and operational failures, urging Board reconstitution with independent airline experts.

Elliott Investment Management, which has a $1.9 billion stake in Southwest Airlines Co LUV, has sent a letter to Southwest’s Board of Directors criticizing the company’s outdated strategies and poor execution.

The reports of Elliott’s stake boosted investor confidence, sending the stock price higher on Monday.

Elliott asserts that Southwest’s refusal to modernize, evident in the December 2022 operational meltdown, has resulted in disappointing outcomes for shareholders, employees, and customers.

Elliott points out Southwest’s share price decline of over 50% in the past three years and the financial impact on frontline employees.

They criticize CEO Bob Jordan, who has been with Southwest for decades and has delivered subpar financial and operational performance since his appointment.

Under Jordan’s leadership, Southwest has experienced seven negative guidance revisions in 17 months, with rising unit costs and lagging unit revenues.

Additionally, Elliott criticizes Southwest’s Board of Directors for failing to hold management accountable and reinforcing an insular culture resistant to change.

They highlight that the Board includes no directors with external airline experience and that most independent directors were recruited by Executive Chairman Gary Kelly, contributing to a need for fresh perspectives. Elliott calls for a reconstitution of the Board with genuinely independent directors with expertise in airlines, customer experience, and technology.

The letter calls for new leadership and a comprehensive business review as part of the “Stronger Southwest” plan.

Elliott believes these changes can restore Southwest to industry leadership and achieve a 77% stock return within 12 months.

The airline famous for its discounts is recuperating from the changes in traveling dynamics due to the pandemic, coupled with intense rivalry, Boeing Co BA delivery delays, and more.

Price Action: LUV shares are trading higher by 7.82% at $29.95 at the last check on Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo via Wikimedia Commons

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