Elliott Sends Letter and Presentation to the Board of Southwest Airlines
Discloses Approximately
Calls for Upgraded Leadership and Comprehensive Business Review
Believes Southwest Stock Can Achieve
Full Letter and Presentation Available at StrongerSouthwest.com
The letter substantiates Elliott's view that Southwest's poor execution and leadership's stubborn unwillingness to evolve the Company's strategy have led to deeply disappointing results for shareholders, employees and customers alike.
Southwest's rigid commitment to a decades-old approach has inhibited its ability to compete in the modern airline industry, Elliott said, and this ethos pervades the entire business with outdated software, a dated monetization strategy and antiquated operational processes. Elliott's letter asserts that the Company's failure to modernize is underscored by Southwest's
Elliott noted that Southwest's share price has declined by more than 50% over the past three years and is now below the levels at which it traded in
As a result of this poor performance, Elliott believes that new leadership is required at Southwest, which represents the most compelling airline turnaround opportunity in the last two decades, according to the letter.
As part of its "Stronger Southwest" plan, Elliott outlined three recommendations to improve the Company's performance:
1) Enhance the Board
2) Upgrade Leadership
3) Undertake a Comprehensive Business Review
By executing on the Stronger Southwest plan, Elliott believes the Company can return to its rightful position as an industry leader, including generating best-in-class margins and compelling returns for its shareholders. In doing so, Elliott argues that Southwest's stock can achieve
Elliott is convinced that Southwest's issues are addressable with the right leadership and a comprehensive, unbiased evaluation of available opportunities, and looks forward to collaborating with the Company to restore accountability and best-in-class financial performance for the benefit of Southwest shareholders, employees and customers.
The full text of the letter follows:
June 10, 2024
The Board of Directors
Southwest Airlines Co.
Dear Members of the Board:
We are writing to you on behalf of funds managed by Elliott Investment Management L.P. (together with such funds, "Elliott" or "we"). Elliott has made an investment of approximately
Southwest is a legendary airline with a proud history. Since starting service in 1971, Southwest revolutionized the airline industry with an innovative business model built on operational excellence and a commitment to providing customers with a low-cost alternative to the legacy airlines. This winning strategy generated decades of success and allowed Southwest to become the premier
Today, however, poor execution and leadership's stubborn unwillingness to evolve the Company's strategy have led to deeply disappointing results for shareholders, employees and customers alike. Southwest's share price has declined by more than 50% in the past three years and has now fallen below the levels at which it traded in
After 18 months of intensive research, we are convinced that Southwest represents the most compelling airline turnaround opportunity in the last two decades. The significant investment we have made reflects our conviction that, with the right leadership, Southwest can regain its status as an industry-leading airline. In this letter and the appended presentation, we lay out our perspectives on how Southwest can reclaim its status and achieve the success that Southwest's shareholders, employees and customers deserve.
Southwest Today
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. This failure to modernize is vividly underscored by the
Southwest's Executive Chairman and its CEO, who have spent a combined 74 years at the Company, have presided over a period of severe underperformance, and they have demonstrated that they are not up to the task of modernizing Southwest. Since his appointment, Southwest CEO
Southwest's Board has failed to hold management accountable for poor execution and has been unable to catalyze (or permit) the necessary strategic evolution. Instead, the Board has reinforced an insular culture and outdated thinking in the face of indisputable evidence that change is required. The Board includes no directors with external airline experience, and a majority of the independent directors were recruited by Executive Chairman
The lack of accountability is best reflected in the Company's response to the
We believe that new leadership is required at Southwest. While Southwest has a proud history, that history is not an argument for supporting poor leadership and sticking with a strategy that no longer succeeds in the modern airline industry. Rather, Southwest's legacy necessitates evolution and change to regain industry leadership for its customers, employees and shareholders. As one of Southwest's largest investors, we are committed to delivering the necessary leadership changes to achieve this goal.
A Stronger Southwest
In the accompanying presentation, "Stronger Southwest," we outline our views on the challenges the Company faces today and our recommendations to drive improved performance, which we summarize below:
(1) Enhance the Board of Directors: The Board should be reconstituted with new, truly independent directors from outside of Southwest who have best-in-class expertise in airlines, customer experience and technology.
(2) Upgrade Leadership: Southwest must bring in new leadership from outside of the Company to improve operational execution and lead the evolution of Southwest's strategy.
(3) Undertake a Comprehensive Business Review: Southwest should form a new management and Board-level committee to evaluate all available opportunities to rapidly restore the Company's performance to best-in-class standards. This review would modernize Southwest's strategy and operations with a focus on increased customer choice, improved cost execution and updating outdated IT systems, among other opportunities, and it should leverage the fresh perspectives of the new directors to help formulate the optimal go-forward plan for Southwest.
By executing on the Stronger Southwest plan, we believe the Company can return to its rightful position as an industry leader, including generating best-in-class margins and compelling returns for its shareholders. We believe Southwest's stock can achieve
The Stronger Southwest plan puts the Company on a path to more sustainable performance that will better serve customers, employees and shareholders. The plan modernizes Southwest's approach to ensure that its offering is aligned with customer preferences. It upgrades leadership to improve execution. It drives the efficiency required to continue offering low fares. And it facilitates the necessary investments to run the reliable operation that customers and employees expect.
Next Steps
Southwest became a leading airline by innovating and executing. Today, Southwest's failure to execute and evolve has led to deteriorating performance, and the Company simply is not living up to its legacy of efficiency and top-tier results. Nevertheless, we are convinced the issues the Company currently faces are addressable with the right leadership and a comprehensive, unbiased evaluation of the available opportunities.
We look forward to collaborating with Southwest to restore accountability and best-in-class financial performance for the benefit of the Company's employees, customers and shareholders. To that end, we will make ourselves available for a meeting with you at your earliest convenience to discuss these issues in greater detail and to align on the changes that Southwest needs in order to deliver on its significant potential.
Sincerely,
John Pike
Partner
Portfolio Manager
About Elliott
Elliott Investment Management L.P. (together with its affiliates, "Elliott") manages approximately $65.5 billion of assets as of December 31, 2023. Founded in 1977, it is one of the oldest funds under continuous management. The Elliott funds' investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, high net worth individuals and families, and employees of the firm.
Media Contact:
Casey Friedman
Elliott Investment Management L.P.
(212) 478-1780
[email protected]
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SOURCE Elliott Investment Management L.P.