Elliott to call special Southwest shareholder meeting for leadership overhaul

By Rajesh Kumar Singh

(Reuters) -Activist investor Elliott Investment Management on Tuesday escalated its boardroom battle with Southwest Airlines (NYSE:), saying it plans to call a special shareholder meeting as soon as next week to overhaul the airline’s leadership.

The hedge fund has launched a campaign to oust CEO Bob Jordan and other top executives, blaming them for the company’s underperformance. It wants the U.S. carrier to change the way it runs its business and has laid out plans to replace two-thirds of the board’s 15 directors.

Southwest said in a statement that if Elliott submits a request for a special meeting, the board will “fulfill its duties to carefully review the request in good faith.”

In a bid to prevent a proxy fight, Southwest this month said six directors would step down in November and Executive Chairman Gary Kelly would retire next year. The company would appoint four new independent directors in the near future and would potentially include up to three candidates proposed by Elliott, it added.

But Southwest reiterated its support for Jordan, saying there was “no better leader” to successfully execute its strategy to “evolve the airline and enhance sustainable shareholder value.”

In a letter to shareholders on Tuesday, Elliott accused the airline of obstructing a leadership change.

“We do not support the company’s current course, which is being charted in a haphazard manner by a group of executives in full self-preservation mode,” it said.

“The urgency of management and board change at Southwest could not be clearer.”

Elliott asked Southwest shareholders to call back all of their shares prior to Oct. 7.

The hedge fund now owns enough Southwest stock to call a special meeting and take the next steps to shake up the board and management.

Southwest has struggled to find its footing after the pandemic, in part due to Boeing (NYSE:)’s aircraft delivery delays and industry-wide overcapacity in the domestic market.

Its operating costs have increased by 23% since the pandemic, but unit revenues have increased by just 6%. 

The operating margin declined to 0.2% in the first half of this year from more than 13% in 2019. In comparison, Delta posted an operating margin of 9.5% in the first six months, with United’s at 7.4%.

Southwest’s shares, which were up 0.5% at $29.78 in afternoon trade, have lost about 43% in the past three years, compared with a 9% gain in Delta’s shares.

To turn around its fortunes, Southwest plans to offer assigned and extra-legroom seats to attract premium travelers, and start overnight flights. The company also intends to carry out network changes.

Southwest is due to share more details on Thursday at its investor day.