WEST PALM BEACH, Fla. - Elliott Investment Management L.P., an investment firm with significant economic exposure in Southwest Airlines Co. (NYSE: NYSE:LUV), has publicly expressed its lack of confidence in the airline's current CEO, Bob Jordan, and its leadership. The firm's partners, John Pike and Bobby Xu, criticized Southwest's recent Investor Day announcements as a continuation of ineffective strategies that have led to profitability declines in the past years.
Elliott, which manages around $69.7 billion in assets and holds approximately 11.0% of Southwest's shares, including derivative agreements, argues that the airline's plans to add assigned seating and premium products, which are expected to take multiple years to implement, are indicative of Jordan's lack of vision and capability. The investment firm contrasts Southwest's timeline with peers who have executed similar changes more rapidly.
In response to what they perceive as years of financial underperformance and delayed initiatives under Jordan's leadership, Elliott is determined to call a special meeting to elect an independent Board of Directors. They believe a new board would better serve the interests of Southwest's customers, employees, and shareholders.
Elliott's involvement with Southwest includes extensive engagement, including in-person meetings and over a dozen phone calls with the airline's leadership. Despite these efforts, Elliott remains unconvinced of the current leadership's ability to realize the company's potential.
The investment firm intends to file a proxy statement with the Securities and Exchange Commission to solicit proxies for the election of its slate of director candidates and other proposals at the next shareholder meeting of Southwest Airlines, whether annual or special.
This move comes at a time when Southwest, like other airlines, is navigating the challenges of the post-pandemic travel industry, and shareholder activism is increasingly influencing corporate governance. Elliott's statement and planned actions underscore the firm's commitment to advocating for what it sees as necessary changes to improve Southwest's performance.
The information presented in this article is based on a press release statement from Elliott Investment Management L.P.
In other recent news, Southwest Airlines has announced a series of strategic developments. The company has increased its third-quarter Revenue per Available Seat Mile (RASM) forecast by 3.5 percentage points, now expecting a year-over-year growth of 2% to 3%. Furthermore, a new $2.5 billion share buyback program has been unveiled, which represents 15% of its outstanding shares. The company also aims to return to double-digit profit margins by 2027, indicating an earnings per share (EPS) potential of about $4.50.
In line with these financial adjustments, Southwest has announced a strategic plan to limit its annual capacity growth to between 1% and 2% over the next three years. This move is seen as a positive change, with historical data suggesting better performance when capacity increases are kept below 5%.
The company is also planning a major operational overhaul to improve customer experience and generate approximately $4 billion in incremental earnings by 2027. This includes the introduction of assigned and premium seating options, formalizing partnerships with international carriers, and launching a unique vacation package product, all set to begin in 2025.
Southwest's Board of Directors has approved a $2.5 billion share repurchase program, reflecting confidence in the strategic plan's ability to create shareholder value. The company has also appointed Robert "Bob" Fornaro, a seasoned airline executive, to its Board of Directors.
In response to these changes, Barclays (LON:BARC) maintains an Equalweight rating for Southwest, while Evercore ISI upgraded the airline's stock to Outperform, citing the company's new revenue initiatives and shift towards capacity discipline. These are some of the recent developments surrounding Southwest Airlines.
InvestingPro Insights
As Elliott Investment Management pushes for changes at Southwest Airlines Co. (NYSE: LUV), the airline's financial metrics and analyst sentiment provide a broader context for the investment firm's concerns. Southwest Airlines holds a market capitalization of roughly $18.46 billion, indicating its significant presence in the airline industry. Notably, the company's P/E ratio stands at a high 234.89, but when adjusted for the last twelve months as of Q2 2024, it moderates to 32.78, which could signal a hefty expectation of earnings growth or a premium for the stock's perceived value.
Analyst optimism is apparent as four analysts have revised their earnings projections upwards for the upcoming period, reflecting a potential turnaround or at least improved financial prospects. This positive sentiment is further supported by the fact that Southwest Airlines has been profitable over the last twelve months, which is a reassuring sign for investors concerned about the company's ability to navigate the post-pandemic travel landscape effectively.
Additionally, Southwest Airlines' revenue growth has been steady, with a 7.54% increase over the last twelve months as of Q2 2024. This growth, although modest, suggests that the company is managing to expand its financial top-line in a competitive sector. In the context of Elliott's criticism, these InvestingPro Tips and data points can offer shareholders a more nuanced view of the company's financial health and future prospects.
For readers seeking more in-depth analysis, there are additional InvestingPro Tips available, including insights on Southwest's cash versus debt position, earnings multiple, and EBIT valuation, which can provide valuable information for making informed investment decisions. For further details on these tips and more, visit InvestingPro at https://www.investing.com/pro/LUV.
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