Elliott Investment Management plans to nominate a slate of candidates for the board of Southwest Airlines Co., increasing the activist investor’s pressure for sweeping changes at the struggling airline, a person familiar with the matter said.
Elliott will nominate up to 10 directors and call a special meeting to allow investors to vote on the nominees, said the person, who asked not to be identified because the plans are confidential. The activist must amass a 10% stake in Southwest before he can seek the meeting, which he expects to happen before the airline’s annual meeting next spring.
The start of a proxy fight marks a significant escalation by Elliott after he built up a large stake in Southwest earlier this year. The investor has called for sweeping changes, including the firing of CEO Bob Jordan and Chairman Gary Kelly, and criticized the airline for refusing to implement changes that have rippled throughout the industry and caused its stock to plummet in recent years.
Southwest has not heard from Elliott and is unaware of the plans, a spokeswoman said.
Southwest shares rose 1 percent as of 6:38 p.m. after hours in New York. The stock has fallen 12 percent this year through Tuesday’s close.
The airline announced dramatic changes to its business model last month, including seat reservations, a new premium class option and plans for overnight flights – moves the company sees as boosting revenue and making it more attractive. Although Southwest said earlier this year it was considering the changes, the company has faced increasing pressure from Elliott to revamp its underperforming operations.
Southwest has struggled this year with slowing growth, fewer-than-expected aircraft deliveries from Boeing Co. and a series of air traffic incidents that triggered a review by the Federal Aviation Administration (FAA). The strains on the business were underscored in the company’s latest forecast, which said revenue and costs in the current quarter were worse than Wall Street estimates.
Elliott criticized Jordan and Kelly, who was CEO before Jordan, for their poor execution and their “obstinate unwillingness to evolve the company’s strategy.” They are “not up to the task of modernizing Southwest,” the activist said. He also called for a reshuffle of the board and criticized the lack of flight experience and independence of the current members.
Southwest last month appointed a veteran airline executive to its board to address other concerns raised by Elliott, and the airline also adopted a shareholder rights plan designed to prevent the activist from gaining a larger stake.
The Wall Street Journal had previously reported on Elliott’s plans.
