Southwest Airline’s Activist Investor Concerns Won’t Disappear After the Deal with Elliott
The four-month feud between Southwest Airlines and hedge fund Elliott Investment Management is over — at least, for now.
Southwest and Florida-based Elliott settled their feud on Oct. 24 with a truce to give the activist investor strong influence on the carrier’s board, but preserve Southwest’s leadership.
In June, Elliott disclosed a $1.9 billion stake in Southwest and proceeded to spend the summer skewering the Dallas-based airline for lackluster financial performance and operational incompetence. Elliott called out leadership, demanded new board members and critiqued some of Southwest’s signature offerings, calling for a business review.
Neither Southwest nor the company’s leadership came away unscathed. The maverick carrier known for an egalitarian open-seating policy is readying to introduce premium sections, a move that pushes it closer to its rivals in the industry. CEO Bob Jordan kept his job, but executive chairman and former CEO Gary Kelly was forced out along with six other board members.
“Southwest does a lot of resting on their laurels, and they have a lot of plans to implement here,” said Bill Swelbar, chief industry analyst at The Swelbar-Zhong Consultancy. “I don’t think the competition is going to sit idly by and say, ‘Hey, we’ll wait on you. You just get your act together and then we’ll compete again.’ They’re vulnerable.”
Analysts, historians and researchers analyzed the company’s future and believe there’s still a long way to go and Elliott may not be done yet, despite the truce.
“I can promise you it’s all eyes forward here as we work to set up Southwest for success for generations to come,” Jordan said during the company’s latest quarterly earnings.
A board shakeup
When Elliott made a list of demands in June, one of the hedge fund’s priorities was to enhance the airline’s board, demanding a fresh set of leadership. It then came up with a list of candidates after the airline didn’t immediately make a change.
Now, David Cush, Sarah Feinberg, Dave Grissen, Gregg Saretsky and Patricia Watson also have been appointed as independent directors to Southwest’s board, all five from Elliott’s slate of transportation, aviation and hospitality or related industries. Saretsky, Cush and three additional directors to be appointed by the board will be on the board’s finance committee, with Saretsky as chair.
Brett Snyder, aviation analyst and blog writer of “Cranky Flier,” calls them the “Elliott Five.” Their initial term will only go until the 2025 annual meeting when they will presumably be re-elected for regular terms, Snyder said. If any one of the “Elliott Five” quits or is removed before that early 2026 date and Elliott still holds at least 3% of Southwest’s shares, then Southwest needs to get Elliott to agree on a replacement for that board member.
“Having this settled means the management team can focus on implementing the transformation plan,” Snyder wrote in a blog about the settlement. “It also means it will likely be easier to hire people to do that work. All the uncertainty around Southwest’s future direction had to turn off some people who otherwise might have come to work for the airline at higher levels.”
Southwest also announced that Rakesh Gangwal, who joined the airline’s board in July, will chair the board as Kelly’s replacement.
That means Elliott is here to stay with the power to hold Southwest’s CEO and other executives accountable. Elliott isn’t a short-term investor that drives up a stock price and then leaves. The hedge fund continues to pay attention and hold companies accountable.
In Elliott’s history, it’s done just that, even with Texas companies, from AT&T to Texas Instruments and NRG Energy.
In January 2017, Elliott and its subsidiaries disclosed it owned about 6.9% common stock in NRG Energy, a Houston-based electric company. Elliott had been eyeing more board candidates.
By February 2017, Elliott and another shareholder, Bluescape, had entered into cooperation agreements, a form of a settlement just like it did with Southwest, with NRG. Two board members retired. A new chairman and two new directors were named. NRG also created a five-person ad hoc committee of the board — the business review committee. The company released a business transformation plan in July 2017.
In May 2023, Elliott disclosed an investment of about $1 billion, or roughly 13% economic interest, in NRG Energy. It wrote to the board that month, describing how much NRG Energy had pivoted from its transformation plan.
CEO gets to stick around
One constant remains: Bob Jordan.
Jordan, who was the hand-picked successor for longtime leader Kelly, will keep his job after calls from Elliott for the company’s leader to be replaced. In its initial letter to the board, Elliott called out the “poor execution” and leadership’s “stubborn unwillingness” to evolve strategy, leading to “deeply disappointing results for shareholders, employees and customers alike.”
The agreement sings a different song out of Elliott. Jordan has remained clear in his intentions to stay at Southwest despite the backlash from Elliott.
Jordan is sitting in a chair that is on the “hot side of warm,” Swelbar described. The other Southwest leader in a fairly warm chair is Southwest’s chief operating officer Andrew Watterson, he said.
“I don’t believe they are done, I don’t think anybody at this point has a hall pass,” Swelbar said.
Snyder adds he feels that Tammy Romo, chief financial officer, may also be at risk.
“Combine this with Southwest’s earnings call last week that showed steady progress on revenue and operations but left a lot to be desired in finance — there were no fewer than six different analyst questions trying to clear up confusion around aircraft sale and leasebacks,” Snyder wrote. “I’d imagine current CFO Tammy Romo’s seat is feeling a little warm right now.”
Snyder added “as long as none of these board members are trying to jockey for position as future CEO,” the direction of the airline feels “clear” and Southwest has time to execute.
“If things aren’t going well by early 2026, well, then it’ll be time for chaos again,” Snyder wrote.
Where Southwest goes from here
Southwest promised change. Now it’s time to put it to the test.
The next several months will be putting everything the airline has promised into place — assigned seating, premium options, and global airline partners, among other changes that should improve profitability.
Swelbar calls it a “nice start.”
“It would have been nice to have heard from the Southwest management, absent the pressure from Elliott,” Swelbar said. “I remain of the view that I agree that Elliott is right to challenge the company, but I’m also of the view that once they get inside, they are going to discover that there is a lot more to do.”
Elliott has agreed to stop publicly criticizing Southwest management for a time.
The standstill agreement has multiple rules that restrict Elliott’s control of the company, according to a regulatory filing. For example, it places restrictions on acquisitions to voting securities, calling for a meeting of shareholders and more.
It gives Southwest leadership some breathing room to execute, according to Keith Gottfried, a shareholder activism defense adviser at Gottfried Shareholder Advisory.
“However, the standstill does not prevent Elliott from conducting an activist campaign at the 2026 annual meeting,” Gottfried said. “... Clearly, the pressure will be on Bob Jordan and his team to execute and transform Southwest and its business model and grow shareholder value.”
The next three years will also be a battle between the Dallas-Fort Worth carriers to take the crown, Swelbar explained. He said he’d bet on Southwest’s balance sheet, which has shown strength in the company’s assets, but if the bet is on an airline’s domestic scope and seats in place, he’d bet on American.
“I just somehow believe that we’ve got a Metroplex war that is about to take place,” Swelbar said.
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