by Lacey Pfalz
Last updated: 11:50 AM ET, Mon June 10, 2024
Southwest Airlines might be seeing a new board of directors after Elliott Investment Management, which reports a stake worth about $1.9 billion in the air carrier, called for an overhaul of its leadership following recent challenges related to Boeing’s safety crisis and the December 2022 operational meltdown that left two million travelers stranded.
According to the letter Elliott sent to the Board of Directors, “...Poor executive and leadership’s stubborn unwillingness to evolve the Company’s strategy have led to deeply disappointing results for shareholders, employees and customers alike. “
Under CEO Bob Jordan’s leadership, the company has seen seven negative guidance revisions in the past 17 months, something Elliott calls “unacceptable.”
“Southwest’s share price has declined more than 50% in the past three years and has now fallen below the levels at which it traded in March 2020, during the depths of the COVID-related travel shutdowns,” the letter explains. “And while the U.S. airline industry is seeing record revenues and peer airlines are enjoying very strong profitability, Southwest’s 2024 EBITDAR is expected to be nearly 50% lower than 2018 levels.”
“Southwest’s rigid commitment to an approach developed decades ago has inhibited its ability to compete in the modern airline industry; this ethos pervades the entire business with outdated software, a dated monetization strategy and antiquated operational processes.”
According to Reuters, the air carrier has had to shrink its growth expectations due to the Boeing safety crisis, since it is a loyal Boeing customer. Yet it expects to receive only 20 aircraft from Boeing this year, which is less than a quarter that it had previously expected to receive.
The letter goes on to suggest a return to a “Stronger Southwest,” through a new independent Board of Directors chosen with expertise in airlines, technology and customer experience; bringing in new leadership from outside of Southwest and by undertake a comprehensive business review focusing on “increased customer choice, improved cost execution and updating outdated IT systems…”
It predicts that through these changes, the airline will achieve $49 per share within the next year, which is a 77 percent return during the period.
The challenges that Southwest is facing this year aren’t unique to the airline: Boeing’s issues could still stall production of its Boeing MAX 737 by several more months, causing airlines like United and Allegiant to expect at least half the number of new aircraft deliveries this year, during a year when more travelers are heading internationally than ever before. And in late May, American Airlines’ profit sank nearly eight percent in premarket trading, largely due to excess capacity.
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