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Southwest Airlines’ CEO Has Been Ousted By a $1.9 Billion Investment Firm

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Southwest Airlines
FILE - A Southwest Airlines jetliner waits on a runway for departure from Denver International Airport Friday, Sept. 1, 2023, in Denver. Activist shareholder Elliott Investment Management has taken a $1.9 billion stake in Southwest Airlines. The investment firm said Monday, June 10, 2024, that Southwest failed to keep up with other airlines and suffers from outdated technology and operations. (AP Photo/David Zalubowski, File)

(CTN News) – Elliott Investment Management has invested $1.9 billion in Southwest Airlines and is attempting to remove its CEO, who faces operational and financial problems.

Given that the company’s shares rose 7% on Monday, this was the airline’s second-best day since 2020.

In a letter to the board of the company, the investment group voiced its displeasure with Southwest Airlines stock price, which has dropped by more than 50% in the last three years.

Elliott claimed that Southwest’s inability to adjust had damaged its ability to compete with other airlines. The company blamed the airline’s antiquated software and operational procedures for the significant flight cancellations that the Dallas-based carrier experienced in December 2022.

In a letter dated Monday, the investment firm said that leadership’s obstinate resistance to changing the company’s vision and its subpar execution have left shareholders, staff members, and clients deeply disappointed.

Robert Jordan, the CEO of Southwest, was said in the letter to have continuously displayed “unacceptable financial and operational performance.” According to the statement, Jordan and Gary Kelly, the airline’s former CEO and current executive chairman, “are not capable of modernizing Southwest.”

Elliott is pushing for the nomination of executives to replace Jordan and Kelly who are not affiliated with the company. Elliott is also pushing for “substantial” changes to the board, like adding new independent directors with prior airline experience.

When Elliott called Southwest Airlines on Sunday,

The business said it was eager to understand Elliott’s point of view about the company more thoroughly.

“A spokesperson for Southwest Airlines stated that the Board of Directors is confident in the capacity of our CEO and management to execute the company’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers, and deliver on our commitments to all of our stakeholders.”

For a long time, Southwest Airlines drew budget-conscious tourists by not charging for checked bags or reservation modifications. Its planes don’t have a luxurious cabin. But its nearest rivals have done away with changing costs during the pandemic and are drawing luxury passengers with better facilities and seating.

In April, Jordan seemed to capitulate to the demands of the market when Southwest revealed a $231 million first-quarter loss. He revealed that Southwest was thinking of changing its rules on seats and boarding. The airline even took an unusual step and removed four cities from its map.

Savanthi Syth, an airline analyst at Raymond James Financial, says that among other reasons, Elliott was probably lured to Southwest by the company’s strong cash sheet, well-known brand, and commanding presence at many airports. She said that making the required changes shouldn’t be too difficult.

Southwest Airlines expanded rapidly after the epidemic, adding 18 new cities.

Despite realizing this six or eight months later, Southwest Airlines realized that it needs to scale back its development activities. This has resulted in higher costs.

Due to Boeing’s manufacturing limitations, which were brought on by a 737 Max door seal failing during an Alaska Airlines flight in January, the airline was forced to scale back its expansion.

Southwest Airlines carries the most passengers within the United States, although Delta, United, and American—all of which have more extensive overseas routes—are substantially larger by revenue. For 47 years running, Southwest had the best profit record in the airline business—until the coronavirus pandemic hit in 2020.

Southwest made a record-breaking $26.1 billion in revenue last year. But at $465 million, its profit was only a tenth of Delta’s and down from the previous two years.

Based on their respective stock performance, Delta and United have emerged as the most lucrative U.S. airlines following the pandemic. At Friday’s closing, Southwest’s stock had lost 52% from three years prior, roughly matching the decline in American shares. On the other hand, during that time, shares of United fell by almost 7%, while shares of Delta saw a gain of more than 9%.

The Wall Street Journal was the first to report Elliott’s stake in Southwest.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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