Elliott Investment Management is initiating a proxy fight against Southwest Airlines, aiming to nominate 10 candidates to fill 10 of the 15 seats on the airline’s board. The hedge fund argues that these changes are crucial for addressing the airline’s underperformance compared to its rivals.
In a statement released late Tuesday, Elliott described the nomination of its board candidates as a crucial step toward implementing necessary reforms at Southwest. However, Southwest Airlines responded on Wednesday, stating that it had tried repeatedly to engage with Elliott to address its concerns, only to have those attempts dismissed.
Southwest noted that after agreeing to a meeting with Elliott in early September to discuss a possible resolution, including ongoing board refreshment and governance improvements, Elliott abruptly announced its intention to replace a majority of the board.
Following the news, Southwest Airlines Co.’s stock fell by 0.16% in trading on Wednesday. Elliott, which holds approximately an 8% stake in Southwest, has seen the airline’s shares decline 12% this year, while the S&P 500 has gained 14%. Southwest’s performance this year has lagged behind that of Delta Air Lines and United Airlines.
The airline has underperformed compared to its competitors, trailing Delta, United, and American Airlines in second-quarter operating margins. Analysts predict that Southwest will report losses for the third quarter. Elliott has criticized CEO Robert Jordan and Chairman Gary Kelly, calling for their removal due to their alleged failure to adapt to industry changes.
Southwest has announced plans to boost revenue by introducing assigned seating and offering extra legroom for an additional fee on a portion of its seats. Jordan is expected to provide more details on these changes in September.
Elliott’s proposed board candidates include former CEOs of Air Canada, WestJet, and Virgin America, former senior executives from JetBlue and Ryanair, and a former U.S. Transportation Department official. The hedge fund has previously pressured other companies to make leadership changes, including Starbucks, which announced a new CEO shortly after Elliott began advocating for such a move.
The Wall Street Journal reported earlier that Elliott is preparing to call a special meeting for a shareholder vote on its proposed board candidates.
