The activist hedge fund Elliott Investment Management has started a fight for control of the board of Southwest Airlines, the company said, seeking to oust the airline’s CEO and improve performance.
Elliot wants to replace 10 of 15 directors, escalating a proxy war over who should lead the airline and how it should change.
The company’s nominees for the board include transportation and aviation luminaries such as Michael Cawley, a former Ryanair executive, David Cush, former CEO of Virgin Air, Robert Milton, former CEO of Air Canada, and Eash Sundaram, former executive vice president of JetBlue.
“The high qualifications of these candidates contrast with those of the current board, which prior to Elliott’s June 10 letter did not include a single independent director with airline experience,” Elliott said in a statement to CNBC on Tuesday.
According to the Wall Street Journal, Elliott plans to call an extraordinary general meeting so shareholders can vote on the nominees.
These candidates would give shareholders a choice between the existing board or a new one that “brings relevant expertise, fresh thinking and accountability,” Elliott said in a statement.
“Since Elliott launched his campaign against Southwest Airlines, the board has repeatedly attempted to work together constructively,” the Dallas-based airline said in a statement. “Elliott has repeatedly rebuffed these efforts.”
Southwest’s board will review the candidates proposed by Elliott as part of its ongoing board renewal process, the airline said Wednesday.
Southwest’s stock price has fallen 24 percent over the past 52 weeks as the airline tries to implement a turnaround plan that includes creating seats with more legroom, switching to fixed seating and appointing a new board member in July.
The airline’s shares lost about 1 percent on Wednesday.
Last week, Elliott said in a regulatory filing that it had a 7% economic interest, which would put it close to the 10% stake an investor needs to call an extraordinary general meeting. Including derivatives, the company holds a stake of around 11%.
The hedge fund is pushing to replace both Jordan, who has been CEO since 2022, and Executive Chair Gary Kelly, who was CEO before Jordan.
The activist investor had also recently called on struggling Starbucks to fire its CEO. On Tuesday, the coffee giant took that step by bringing Chipotle boss Brian Niccol on board.
Elliott has shown no willingness to engage in meaningful discussions, Jordan said in a quarterly earnings call last month, adding that the airline is taking steps toward a transformation.
Southwest responded to Elliott’s investment by introducing a shareholder rights plan, a so-called poison pill. This would take effect if an investor acquired 12.5 percent or more of the shares and would allow other shareholders to buy more shares at a cheaper price, thus preventing a takeover.
“We expect investors will not vote out current leadership without considering plans for the future, particularly as LUV’s recent actions have demonstrated a growing willingness to adapt in a way that challenges Elliott’s characterization as ‘stagnant,'” Jefferies said in a note ahead of the official announcement.
The airline expects third-quarter unit revenue to be flat or down two percent year-on-year, while non-fuel operating costs are expected to increase by 11 to 13 percent.
Earnings have been under pressure in recent quarters, partly due to delays in Boeing aircraft deliveries. These have eaten into revenue and exacerbated cost and pricing pressures as industry-wide overcapacity in the domestic market has led to a decline in airfares.
Southwest appointed a new board member in July. Rakesh Gangwal joined the board with decades of experience in the aviation industry.
He co-founded IndiGo, India’s largest airline by fleet size and passenger numbers, according to Southwest.
His appointment was likely a response to Elliott’s criticism of the board in June, when the company lambasted Southwest for failing to appoint industry experts.
There are no Elliott employees among Elliott’s ten new board proposals.
Elliott did not respond to requests for further comment.
