Activist investor Elliott pushes to grab control of Southwest Airlines board

Activist hedge fund Elliott Investment Management has launched a battle to seize control of the board at Southwest Airlines as it pushes to oust the airline’s chief executive and improve performance, the firm said.

Elliot seeks to replace 10 of 15 directors, escalating a proxy fight over who should lead the airline and how it should change. 

The board nominees by the firm include transportation and airline bigwigs like Michael Cawley, a former Ryanair executive; David Cush, Virgin Air’s former CEO; Robert Milton, Air Canada’s former CEO; and Eash Sundaram, JetBlue’s former executive vice president. 

“The strong qualifications of these Candidates stand in contrast to those of the current Board, which prior to Elliott’s June 10 letter lacked a single independent director with airline experience,” Elliott told CNBC in a statement Tuesday.

Elliott said it plans to call a special meeting so shareholders can vote on the candidates, according to the Wall Street Journal.

These candidates would give shareholders a choice between the existing board and a new one that “brings relevant expertise, fresh thinking and accountability,” Elliott said in a statement.

“Since Elliott launched its campaign against Southwest Airlines, the Board has consistently sought to engage constructively,” the Dallas-based airline said in a statement. “Elliott has dismissed those efforts at every turn.”

Southwest’s board will evaluate Elliott’s proposed nominees as part of its ongoing board refreshment process, the airline said Wednesday.

Southwest’s stock price has fallen 24% in the last 52 weeks as the airlines tries to implement a turnaround plan that includes adding seats with more legroom, moving to assigned seats and naming a new board member in July.

Shares of the carrier were down about 1% on Wednesday.

Last week, Elliott said in a regulatory filing that it had a 7% beneficial ownership, putting it close to the 10% stake required for an investor to call a special meeting. The firm has a roughly 11% interest including derivatives.

The hedge fund has pushed to replace both Jordan, who has been CEO since 2022, and executive chair Gary Kelly, former CEO before Jordan.

The activist investor had also recently called on struggling Starbucks to dump its CEO, a move the java giant pulled the trigger on Tuesday by bringing on Chipotle boss Brian Niccol.

Elliott had not shown willingness to engage in any meaningful conversations, Jordan said in an earnings call last month, adding that the airline was taking steps to transform itself.

Southwest reacted to Elliott’s investment by adopting a shareholder rights plan, or poison pill, that would kick in after an investor acquires 12.5% or more of the stock and allow other shareholders to buy more stock at a discount to try to prevent a takeover.

“We expect investors are unlikely to vote out the current leadership without entertaining go-forward plan, particularly as LUV’s recent actions have shown a growing willingness to adapt in ways that challenge Elliott’s ‘stagnant’ characterization,” Jefferies said in a note before the formal announcement.

The carrier expects third-quarter unit revenue to be flat to down 2% year-on-year, while non-fuel operating costs are estimated to be up 11% to 13%.

Earnings have been under pressure in recent quarters, partly because of delays in plane deliveries from Boeing, which have hit revenue and worsened cost pressures and pricing pressure as an industry-wide overcapacity in the domestic market have dampened airfares.

Southwest appointed a new board member in July. Rakesh Gangwal joined the board with decades of experience in the airline industry.

He co-founded IndiGo, India’s largest airline by fleet size and passengers, according to Southwest.

His appointment was likely a response to Elliott’s critique of the board in June, when the firm slammed Southwest for not appointing any industry experts.

Elliott’s 10 new board suggestions do not include any Elliott employees.

Elliott did not respond to requests for further comment.