Activist Investor Slams Southwest’s Outlook, Says Airline is ‘Unable to Adapt’ 

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Elliott Investment Management, which has a $2 billion activist stake in Southwest, was highly critical of the airline’s revenue forecast cut for the second quarter.

Meghna Maharishi

Activist investor Elliott Investment Management slammed Southwest on its weaker second-quarter financial outlook on Wednesday. 

“Southwest is led by a team that has proven unable to adapt to the modern airline industry,” the hedge fund said, “the Company’s release today seems to admit as much by stating that the revenue guidance  reduction was the result of ‘complexities in adapting’ to the current environment — complexities that Southwest’s peers seem able to adapt to.”

The airline expects to see record quarterly operating revenues for the second quarter. 

“The Company remains intensely focused on improving its financial results and creating value for its Shareholders,” Southwest said in a regulatory filing. 

Elliott took a nearly $2 billion stake in Southwest earlier in June, making the hedge fund one of Southwest’s largest investors. With that stake, Elliott has been demanding major leadership changes at Southwest, including the resignations of CEO Bob Jordan and chairman Gary Kelly (who was previously CEO of the airline for nearly 17 years).

The hedge fund is not new to the travel industry. Previously, Elliott made activist stakes in Dean Hotels and Travelport. The firm is also known for its shareholder activism at other companies like Softbank, Texas Instruments and Johnson Controls. Some of Elliott’s activist campaigns have led to the recent CEO resignations at telecommunications giant Crown Castle and energy company NRG. 

“Unfortunately, this is yet another example that fundamental leadership change is urgently needed at Southwest,” Elliott wrote Wednesday. “Elliott is committed to delivering the leadership changes that the Company requires.”

Leadership Change Demanded

Elliott has previously said it believes that a leadership change at Southwest would help the airline implement more changes to its business model in order to be profitable. So far, Southwest has underperformed in 2024, due to a range of issues like Boeing delivery delays, high labor costs and sustained demand for premium travel. 

Southwest executives are debating whether to bring bigger changes to its business model. Recently, Southwest fares started appearing on Google Flights, after resisting the meta search platform for years to cut down on distribution costs and build up loyalty among its customers. 

Jordan has mentioned potentially adding premium cabins to Southwest’s fleet and getting rid of its open boarding process. He said he wouldn’t consider adding baggage fees — Southwest currently lets customers check in two bags without an extra charge. 

But Elliott wants Southwest to consider baggage fees, along with a slew of other changes. In a presentation, the hedge fund said Southwest has “written off key commercial innovations and revenue opportunities,” related to assigned seating, premium products, basic economy and checked bag fees. 

So far, Jordan also said he wouldn’t resign and that Southwest was ready to adapt to a changing consumer landscape. 

“You can’t be stubborn,” he said at a Politico event June 12. “If customer demands are changing and expectations are changing you must change with them while being true to what you stand for.”