Elliott Management Launches Proxy Fight at Southwest Airlines

Elliott Investment Management has made headlines by calling a special shareholder meeting for Southwest Airlines Co., marking its first U.S. proxy battle since 2017. The proposed meeting is scheduled for December 10, where investors will have the opportunity to vote on a new slate of board nominees.

Elliott is pushing to replace eight current directors, nominating seasoned industry veterans to instigate significant changes in the airline’s leadership. Among the nominees are Michael Cawley, former deputy CEO of Ryanair; David Cush, the ex-CEO of Virgin America; and Gregg Saretsky, previous CEO of WestJet. Elliott believes that these candidates are instrumental in holding the company's executives accountable while enhancing operational efficiency and financial performance.

Currently, Southwest's stock remains relatively stagnant, trading at a market capitalization of $18.3 billion, as Elliott holds an impressive 11% stake in the airline. This proxy fight marks a shift for Elliott, known for its strategic engagements rather than confrontational shareholder votes. The firm’s last notable battle took place at Arconic Corporation in 2017, which ended in a settlement before voting occurred.

This initiative comes on the heels of Southwest’s struggle to maintain competitive performance. Over the last three years, its shares have plummeted approximately 40%. Although the airline’s stock has rebounded by about 20% over the past year, its progress pales compared to rivals Delta Air Lines and United Airlines, both of which have seen stock increases exceeding 50%.

In response to Elliott's increased involvement, Southwest announced a streamlining of its board, reducing its size from 15 to 12 members and paving the way for Elliott's new nominees. In a notable turn of events, six directors, including Chair Gary Kelly, will step down, acknowledging the need for fresh perspectives amidst mounting pressures for improved performance.

Southwest’s management has been under scrutiny for years of perceived underachievement, with CEO Bob Jordan facing criticism for his leadership strategies. In a bid to counter Elliott's influence, the airline implemented a "poison pill" strategy in July to prevent hostile takeovers, asserting that it made genuine efforts to engage with the activist firm.

Despite the defensive measures, Elliott has been vocal about its desire to see transformation at Southwest. The firm previously indicated a willingness to avoid conflict but ultimately decided to push for a vote as the need for enhanced oversight at Southwest has never been more urgent.

In September, Southwest announced a share buyback plan and changes to its seating policy, coupled with a strategy to generate an additional $4 billion in operating profit by 2027. Jordan has pushed back against Elliott’s criticisms, referring to their approach as mere "tactics and gamesmanship."

It's worth noting that Elliott isn't the only activist investor involved; Artisan Partners Limited Partnership also holds a stake in Southwest, indicating that the airline's governance is under increased scrutiny from multiple fronts.

With the special meeting on the horizon, all eyes will be on how Southwest’s shareholders respond to Elliott's call for a new direction, as the firm aims to reshape the airline's future amidst a shifting landscape in the aviation industry. Will shareholders endorse Elliott’s vision, or will the current board retain control? Only time will tell.