Activist Slams ‘Reckless and Chaotic’ Southwest Air Strategy

(Bloomberg) — Activist investor Elliott Investment Management blasted Southwest Airlines Co.’s “reckless and chaotic” recovery strategy and said it would continue to seek a board overhaul, escalating tensions in a showdown over the carrier’s future.
Elliott said in a letter Tuesday that it plans to call a special shareholder meeting in the coming weeks to give investors a chance to vote on a slate of 10 potential directors it previously proposed.
“Given the reckless and chaotic actions that Southwest’s leaders keep taking in an attempt to preserve their jobs — and the resulting risk to the company and its constituents — the need for change is urgent,” Elliott said in the letter to shareholders.
Southwest didn’t immediately respond to requests for comment.
The move is a repudiation of steps Southwest has already announced, including plans to revamp its seating policy, sell premium products and offer redeye flights. The airline, seeking to boost underperforming shares and stem financial challenges, also said this month that Chairman Gary Kelly and about half of the board would step down.
Elliott, which has become Southwest’s second-largest shareholder while acquiring an 11% interest in the company, has sought more sweeping changes to the board and its operations, saying leadership has failed to update the carrier. The firm has also demanded the ouster of Chief Executive Officer Bob Jordan, whom Southwest has stood by.
Shares of Southwest gained less than 1% to $29.76 as of 1:22 p.m. in New York. The carrier’s stock is up about 3% this year, compared with a more than 10% gain in the S&P airlines index.
Southwest warned employees in the past week that it would be announcing “some difficult decisions” in coming days under its plan to bolster profits and help fend off Elliott’s demands for change. In a video to workers, Chief Operating Officer Andrew Watterson apologized to employees who might be affected, even though there are no plans to end service to more cities.
Southwest is set to release a new flight schedule Wednesday, followed a day later by a broader investor meeting to detail the plan to revamp operations.
The airline has said it will name four new directors at its November meeting, when six current members will resign. Kelly will retire next year.
The activist urged shareholders to take necessary steps now to ensure that they will be able to vote their full holdings at the upcoming special meeting.
“We do not support the company’s current course, which is being charted in a haphazard manner by a group of executives in full self-preservation mode,” the activist hedge fund said in the letter. Current leaders “have proven incapable of competently running the airline.”
–With assistance from Crystal Tse and Chester Dawson.
(Updates with additional details from first paragraph.)
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