Elliott Calls Southwest’s Board ‘Profoundly Out of Touch’ as Activist Campaign Heats Up

Activist investor Elliott Investment Management fired back at Southwest Airlines Monday for adopting a “poison pill” and appointing a new director to its board. 

“In light of these actions, we have become increasingly concerned by the 'self-help' half-measures that the Board appears to be contemplating and adopting, none of which will do anything to allay the lost credibility of Southwest's management,” wrote Elliott partner John Pike and portfolio manager Bobby Xu in a letter to the airline’s board. 

The hedge fund said Southwest’s board is “profoundly out of touch” with shareholder sentiment and was pushing for the airline to appoint a new CEO, along with adding more board members with relevant experience. 

Elliott took a $1.9 billion stake in Southwest and has since advocated for the airline’s CEO and chairman to step down. The carrier has underperformed in 2024, with issues ranging from Boeing delivery delays, sustained demand for premium travel and high labor costs eating into its profits. Elliott believes new leadership would restore Southwest’s profitability. 

Southwest said Elliott has been trying to acquire an even bigger stake in the company through filings made with antitrust authorities.

Southwest Tries to Fend Off Elliott

To prevent Elliott from acquiring a controlling stake, Southwest recently adopted a “poison pill.” The plan goes into effect if an investor acquires at least a 12.5% stake in the company, giving other shareholders the opportunity to buy a Southwest share for every share they own at a 50% discount. A “poison pill” would dilute Elliott’s voting power. 

Earlier on Monday, Southwest also announced that it appointed IndiGo co-founder and longtime airline executive Rakesh Gangwal to its board of directors. Elliott described Gangwal’s appointment as an “attempt to entrench itself and the current management team.”

Southwest said it was open to "constructive conversations" with Elliott, but claimed the hedge fund wouldn't engage in serious discussions without a CEO ouster.

"Despite Southwest Airlines’ good faith efforts to meet with Elliott to better understand their views, Elliott has focused on personal attacks on our Leadership Team and Board, conditioning any serious discussions on an immediate CEO change," Southwest said in a statement.

The hedge fund claimed it spoke to other shareholders who believed the airline needed leadership changes to turn around its recent underperformance. Only one shareholder — asset management firm Artisan Partners — has come out publicly in favor of Elliott’s campaign so far.

Elliott also alleged that multiple Southwest employees had reached out to the hedge fund, voicing their concerns about the carrier’s leadership. The hedge fund said it was concerned that Southwest might try to make short-term changes such as replacing current CEO Bob Jordan without a comprehensive selection process. 

“Simply put, investors do not want to see a new plan from the same leadership team whose record at the Company has been one of failure,” Elliott’s letter read. “They want new leaders who will bring outside perspectives and proven expertise to the task of preserving all that was great about Southwest while charting a higher-performing future for the airline.”

Watch Southwest CEO Bob Jordan at the Skift Aviation Forum 2023: