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As Southwest Airlines Co. prepares for a proxy showdown with an activist investor, the Dallas-based company's top leader has told employees it will be a "battle for the heart of our company."
Elliott Investment Management LP, a New York-based hedge fund, last week announced it would nominate new directors to replace two-thirds of the Southwest board. Elliott has been pushing for changes since disclosing a large stake in the airline earlier this summer, calling attention to Southwest's (NYSE: LUV) sagging share price and complaining about a "decades-old approach."
Now, Southwest CEO Bob Jordan has fired back and is making the rounds to build support.
"Don't be fooled — this is a battle for the heart of our company and our future — your future," Jordan wrote in a staff memo, Reuters reported Aug. 19. Jordan also reportedly told employees he's met with investors. Additionally, sources told Reuters he's visited with union leaders.
Dallas Business Journal was not immediately able to obtain a copy of the memo. Southwest declined to comment.
Southwest said in an Aug. 14 statement that it has tried to engage constructively with Elliott but the hedge fund has "dismissed those efforts at every turn."
"After Elliott recently agreed to a meeting with Southwest Airlines in early September to discuss a collaborative resolution, including continuing significant Board refreshment and other governance enhancements, Elliott unilaterally decided instead to publicly announce its intention to replace a majority of Southwest Airlines' Board," the statement read.
Southwest has indicated it remains open to conversation with Elliott.
"The Board will evaluate Elliott's proposed nominees as part of its ongoing Board refreshment process," Southwest said.
Southwest’s share price has fallen about 30% in the past two years. Its second-quarter financial report included record quarterly revenue of $7.4 billion, up 4.5% from the same period in 2023. But revenue per available seat mile, or RASM, a key metric, was down 3.8% to 15.9 cents. Adjusted earnings per share were 58 cents, beating the consensus estimate of 51 cents.
Southwest announced plans July 25 to adopt assigned seats and begin selling premium seats, in hopes of bringing in more revenue.
Elliott first disclosed a $1.9 billion stake in Southwest in June. The firm then disclosed in early August that it owned 7% of the airline's outstanding shares. That had grown to 8.2% by Aug. 13. And Elliott said last week it manages funds with a roughly 11% "economic interest" in Southwest, including derivative agreements.
The hedge fund seeks to push out Jordan and Southwest Chairman Gary Kelly. Its proposed new directors include Michael Cawley, former deputy CEO at discount airline Ryanair, and David Cush, former CEO of Virgin America, which was acquired by Alaska Airlines.
Elliott is led by billionaire investor Paul Singer. The firm recently played a role in pushing out Laxman Narasimhan as Starbucks CEO, to replaced by former Chipotle leader Brian Niccol.
Elliott's approach at Southwest follows a "predictable playbook" and a special shareholder meeting to vote on board members is no sure thing, Jordan told employees in the memo seen by Reuters.
"If it's a fight they want, it's a fight they will get," he wrote.
