Southwest Airlines CEO Bob Jordan is desperately trying to win investor support while preparing for a proxy fight as activist hedge fund Elliott Investment seeks to oust him and two-thirds of the board.
“If they want a fight, they’re going to get it,” Jordan said in a memo to staff seen by Reuters on Wednesday.
Jordan – who became CEO in 2022 after a 30-year career at the company – has been meeting with investors to try to gain their support.
The investor tour comes after Elliott announced its intentions last week, saying it would reshuffle 10 of its 15 board members before ousting Jordan and chairman Gary Kelly.
The Southwest boss told employees he has met with investors on the East and West coasts over the past two weeks, and sources said he has also held talks with union representatives.
Elliott, led by billionaire investor Paul Singer, has earned a reputation for turning around struggling companies with a sometimes aggressive approach. Most recently, the firm was instrumental in ousting Starbucks CEO Laxman Narasimhan and appointing Brian Niccol, the former Chipotle chief who drove up the chain’s stock.
Elliott, which disclosed its sizable stake in Southwest in June, blamed Jordan and Kelly for the Dallas-based airline’s “decades-old approach” and low stock price.
Southwest has made a name for itself as a low-cost airline, and investors reportedly fear that the activist company could damage the airline’s reputation and alienate customers.
“Make no mistake – this is a fight for the heart of our company and our future – your future,” Jordan said in the employee memo.
Southwest shares have fallen 6.2% so far this year and were trading at $26.70 on Monday.
Its operating costs have increased 23% since the pandemic, while sales per unit have increased only 6%.
Southwest’s operating margin fell to 0.2% in the first half of this year, down from over 13% in 2019.
Meanwhile, competitors Delta and United reported operating margins of 9.5% and 7.4%, respectively.
Southwest has been hit hard by its dependence on Boeing, which is under heavy regulatory scrutiny following a series of safety problems.
And like other low-cost airlines, Southwest struggles to compete on price with premium airlines that offer a range of different ticket options.
As a result, the company has abandoned its long-standing tradition of not assigning seats and announced that it will begin selling premium tickets with more legroom next year.
Southwest said it would consider board changes but not a CEO change, but sources at the airline told Reuters that Elliott was not ready to engage in serious talks until Jordan and Kelly were out.
Elliott said the company plans to hold a special meeting of shareholders soon to vote on board appointments, so Jordan will likely urge investors to prepare for the vote.
Former United CEO Oscar Munoz, who faced a proxy war of his own in 2016 while recovering from a heart transplant, said he doubted Elliott would be able to overtake the board.
“As far as the activists are concerned, they have some good arguments,” Munoz told Reuters. “How do you start to counteract those arguments?”
He said Southwest would have to make some changes to the board to satisfy Elliott, but Jordan should be allowed to “do his job.”
Southwest has apparently already tried to compromise with Elliott by bringing in a new board member with industry experience after the company criticized the board for not having enough industry veterans.
But Elliott said the changes were “too little, too late.”
Two Southwest investors said the hedge fund needs to provide more details about its turnaround plan.
Elliott expects the changes to push Southwest’s stock price to $49 a month within a year, an increase of more than 85 percent. The company has not disclosed any details other than the new leadership appointments.
Lisa Silverman, senior managing director at global risk advisory firm K2 Integrity, said it would be risky for Elliott to call a special meeting because investors often vote with management.
Jordan stressed, however, that the special session was “hypothetical speculation.”
“Elliott plays a predictable game plan designed to make you feel like they’re in charge,” Jordan said. “But they’re not.”
With post wires
