Elliott Investment Management has sent a letter to Southwest Airlines (WN, Dallas Love Field) asking for extensive changes to be undertaken within the carrier, including a change of leadership, the reconstitution of the board with “new, truly independent directors from outside of Southwest”, and a comprehensive business review that evaluates all opportunities needed to restore the airline’s performance and improve shareholder results.

The hedge fund, which on Sunday, June 9, revealed that it manages funds of approximately USD1.9 billion in the LCC (or about an 11% economic interest in the company), said the Texan low-cost has recently suffered “poor execution and leadership stubborn unwillingness,” which has in turn led to disappointing results, and a more than 50% decline in the airline’s share price, currently trading below March 2020 levels, at the peak of the Covid-19 crisis.

It added that Southwest's board lacks accountability, best reflected in the company’s response to the December 2022 operational meltdown where-after the carrier’s image was badly damaged, and subsequently, the US Department of Transportation’s (DOT) Office of Aviation Consumer Protection fined it USD140 million. No senior executives were fired as a consequence, while chief executive officer Bob Jordan declined to testify in front of the US Congress.

“After 18 months of intensive research, we are convinced that Southwest represents the most compelling airline turnaround opportunity in the last two decades,” said John Pike, a partner at Elliott, and Bobby Xu, portfolio manager, in a letter sent to the company's management.

As its “Stronger Southwest” plan outlined, Elliott wants new leadership brought in from outside in order to improve operational execution and lead its strategy. By doing so, Southwest’s stock could provide a 77% return within 12 months and end up trading at USD49 per share, it said.

"We maintain an open dialogue with our shareholders and value their perspectives related to enhancing shareholder value," Southwest said in its own statement. "We were first contacted by Elliott yesterday and look forward to better understanding their views on our company. The Southwest Board of Directors is confident in our CEO and management’s ability to execute against the company’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers and deliver on our commitments to all of our stakeholders."

Elliott Management is known for forcing changes - including management shake-ups - in the companies it invests in. According to The Wall Street Journal, it has built positions in companies that ultimately replaced their CEOs, such as Crown Castle, NRG Energy, and Goodyear Tire & Rubber.

The Dallas Love Field-based carrier is currently struggling with higher costs, (negotiating workforce adjustments), faces protracted Boeing aircraft delivery delays, and has closed airport bases and implemented capacity reductions. However, it has also shown some willingness to move away from decades-old practices, such as its recent openness to operating red-eye flights.