Activist hedge fund Elliott Investment Management on Thursday blamed Southwest CEO Bob Jordan for the airline’s sagging fortunes — hours after the embattled carrier raised its outlook for profits and revenue.
Elliott, led by billionaire Paul Singer, reaffirmed its intent to call a special meeting to oust the current board and encouraged shareholders to confirm their ability to vote on all of their shares ahead of the meeting.
“Why is Mr. Jordan – who has delivered years of unacceptable financial results and, until very recently, was dismissive of the actions announced today – the right leader to execute on these ‘transformative’ changes?” Elliott wrote in a statement.
“The answer is clear: He is not.”
In response, Southwest released a statement backing Jordan and claimed Elliott has not pursued a “constructive” relationship with the airline.
“Elliott’s attempt to disrupt the Investor Day and failure to offer any feedback or suggestions on Southwest’s transformational plan reveals that Elliott continues to value public attacks and seizing control of the Company over the airline’s future and all of its Shareholders’ interests,” Southwest said.
Southwest shares soared 7% after the company announced its turnaround plan at an investors meeting following intense pressure from Elliott for a management shakeup. The stock closed at $29.93, up 5.4%.
Southwest raised its third-quarter revenue forecast, announced the appointment of an industry veteran to its board and claimed its new business plan will rake in an additional $4 billion in earnings before interest and taxes by 2027.
But Elliott warned shareholders the investor meeting would have a “familiar ring” and be full of “long-dated” promises.
“In 2021 and 2022, Southwest made similar promises of billions of dollars in profitability enhancements,” Elliott said in a statement. “Instead, we’ve seen billions of dollars of profitability deterioration under the leadership of CEO Bob Jordan.”
The hedge fund said “extensive” meetings and phone calls with Southwest leadership left it only more convinced that the airline’s current leaders are “incapable of delivering on Southwest’s potential.”
But Southwest said the hedge fund had “predetermined its position” before speaking with Jordan or hearing about the company’s plans and “has remained entrenched in demanding a supermajority of the Board and immediate CEO change.”
Elliott has called for sweeping changes among the airline’s top leadership – specifically targeting Jordan and Chairman Gary Kelly, who succumbed to mounting pressure from the hedge fund and agreed to retire next year.
The hedge fund also slammed the airline for not having enough industry expertise across its board.
Southwest said it has added or appointed eight new board members over the past three years. The airline claimed it “invited” Elliott to participate in the board revamp process, but instead, the activist prohibited its board candidates from meeting with Southwest leadership.
“The Southwest Board remains willing to consider in good faith Elliott’s Director candidates for appointment to the Board, if Elliott will allow the Board to meet them,” the airline said.
Southwest has already revealed business changes meant to fend off Elliott’s advances. Over the summer, the airline announced it would introduce assigned seating – a first for the nearly 60-year-old company – and seats with extra legroom.
But Elliott said Southwest’s announcement that it would take years to implement these changes was too little, too late.
“Today’s announcement that adding assigned seating and premium products will take multiple years to implement – when peers have implemented similar changes in much shorter time frames – is further evidence that Mr. Jordan lacks the vision and capability to execute on these initiatives,” Elliott said.
