Southwest Airlines is facing significant pressure from its second-largest shareholder, Elliott Management, which is calling for a special meeting of shareholders to vote on a slate of eight new directors. This move would represent a majority of the struggling airline's board. Elliott Management, led by billionaire investor Paul Singer, has been critical of Southwest in recent months and is advocating for leadership changes and a strategic overhaul.
Elliott Management, which now holds an 11% stake in Southwest, has expressed dissatisfaction with the company's response to their concerns. The hedge fund has been pushing for a more substantial reconstitution of the board, citing the need for a shift in strategy to unlock the airline's potential.
In response to Elliott's demands, Southwest Airlines has made some changes, including reducing its board size from 15 members to 12. However, Elliott is pushing for further changes and has proposed a slate of directors to drive the transformation they believe is necessary.
Elliott has criticized Southwest for failing to adapt to changing customer preferences and modernize its technology, which they argue contributed to significant flight cancellations in December 2022, resulting in substantial financial losses for the airline.
Despite recent improvements in operations and a lower cancellation rate compared to industry averages, Southwest has faced challenges, including safety incidents that have raised concerns. The Federal Aviation Administration has increased its oversight of the airline following a near-crash incident earlier this year.
Southwest Airlines recently unveiled its vision for 'Southwest 2.0,' introducing changes such as assigned seating, additional legroom for a fee, and red-eye flights. The airline also plans to revamp its vacation packages and establish partnerships with international carriers to enhance its credit card and frequent-flyer program.
These changes mark a significant shift for Southwest, which has been a dominant player in the low-cost airline sector but is now grappling with financial challenges. While the airline had a strong track record of profitability for its first 50 years, the pandemic-induced downturn in air travel has posed significant hurdles.
Despite Southwest's efforts to improve its financial performance, it still lags behind competitors like Delta and United in terms of profitability. The upcoming shareholder meeting on December 10 will be a crucial moment for Southwest as it navigates these challenges and seeks to chart a new course for its future.
