Southwest Airlines has had some rough times, thanks to some massive delays and cancellations, and now it's not just disgruntled customers who are no longer loyal.
A major investment firm is taking a large stake in the airline and is demanding changes, starting with leadership.
Elliot Investment Management, which announced Monday a $1.9 billion stake in the Dallas-based airline, wrote an open letter Southwest's Board of Directors asking shareholders to vote to change the airline's executive direction and take operations in a different direction.
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“Poor execution and leadership's stubborn unwillingness to evolve the Company's strategy have led to deeply disappointing results for shareholders, employees and customers alike,” the letter said. “In addition to negative returns to shareholders, this disappointing financial performance has cost each front-line employee an average of tens of thousands of dollars in the form of reduced employee profit sharing and a decline in the value of Southwest stock held by employee retirement plans. “
The firm added that it believes Southwest has the “most compelling airline turnaround opportunity” in the industry and outlined a three-pronged strategy that shareholders should consider: improving the Board of Directors, improving leadership (possibly by bringing in outside leaders the company). , and undertake a comprehensive review of the business.
By doing so, Elliot predicted, Southwest could reach $49 a share within the next 12 months, which would be a 77% return.
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“While Southwest has a proud history, that history is not an argument for supporting poor leadership and sticking to a strategy that no longer succeeds in the modern airline industry,” the letter said.
Southwest responded to the investment strong in a paper of its own, noting that the company was “carefully reviewing” Elliott's letter and that it plans to reveal more about its forward-looking strategy during Southwest's Investor Day in September.
“We are confident that Southwest Airlines has the right strategy, the right plan and the right team to drive long-term value for our shareholders,” Southwest said.
Southwest shocked customers last month thousands of flights were delayed due to an internal “technology issue”.
It was the latest setback for the airline's operations looks to cut costs.
The airline had one approx 2023 overallwith a net loss of $219 million in the fourth quarter due to a disastrous holiday season that left thousands of passengers stranded, delayed or with canceled flights.
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“We have not yet met our financial targets,” Southwest CEO Bob Jordan said in an earnings release at the time.
South-west was down up more than 10% year-to-date as of Tuesday afternoon and fell nearly 5% in the 24-hour period after Elliott's letter was released.