Elliott Investment Management is engaging in a proxy battle with Southwest Airlines, planning to nominate 10 candidates to the airline’s 15-member board, whose performance has lagged behind its competitors.
The hedge fund said late Tuesday that the appointment of a slate of board candidates represents “a critical step in implementing much-needed change at Southwest.”
Southwest said Wednesday that the company had repeatedly tried to get Elliott to address its concerns, but those attempts had been rebuffed.
“After Elliott recently agreed to meet with Southwest Airlines in early September to discuss a mutual solution, including ongoing, significant board renewal and other governance improvements, Elliott instead unilaterally decided to publicly announce its intention to replace a large portion of Southwest Airlines’ board of directors,” Southwest said in a prepared statement.
Southwest Airlines Co. shares fell 0.16 percent in Wednesday trading.
Elliott has amassed a roughly 8 percent stake in Southwest, according to a filing Tuesday. The airline’s shares have fallen 12 percent this year, while the S&P 500 has gained 14 percent. It hasn’t been a stellar year for airlines, but Southwest’s shares have suffered more than those of Delta Air Lines and United Airlines.
The company’s second-quarter operating margin lagged far behind Delta, United and American Airlines, and analysts expect Southwest to post a loss in the third quarter.
“The urgency for change is underscored by the continued significant deterioration in Southwest’s performance” since Elliott announced his planned restructuring of Southwest, the company said. Elliott had previously called for the replacement of CEO Robert Jordan and Chairman Gary Kelly, whom the company accuses of allowing Southwest to lag behind changes in the airline industry.
Southwest announced last month that it would make changes to boost revenue, including switching to fixed seating for passengers and offering more legroom at higher prices for about a third of the seats. Jordan promised to provide more details on the measures in September.
Elliott’s list of candidates includes former CEOs of Air Canada, Canadian low-cost airline WestJet and Virgin America, former executives of JetBlue and Ireland’s Ryanair, and a former U.S. Department of Transportation official.
Elliott has previously pushed other companies he saw as underperforming to make management changes. Starbucks announced Tuesday that it would replace its CEO, about two months after Elliott began lobbying for new leadership.
The Wall Street Journal previously reported on Elliott’s plans to nominate candidates for Southwest’s board of directors. According to the report, the hedge fund is preparing to call a special meeting for a shareholder vote.
