Activist hedge fund Elliott Management has amassed a $1.9 billion stake in Southwest Airlines and plans to push for leadership changes at the airline that has lagged big rivals.

Elliott is seeking to replace Southwest CEO Bob Jordan and Chairman Gary Kelly with outside candidates, the activist said in a letter and presentation Monday. Elliott believes Southwest has fallen from a “best-in-class” airline to one of the biggest laggards, according to the presentation detailing its case for change.

The size of Elliott’s stake makes the activist one of Southwest’s largest shareholders, according to FactSet. Elliott said it intends to “pursue all available pathways to deliver the leadership changes” the fund believes Southwest needs.

The firm wants the airline to announce a CEO and chair transition with “immediate” effect, Elliott said in its presentation. Jordan and Kelly have “presided over a period of stunning underperformance at” Southwest, Elliott said. Both executives started their Southwest careers in the 1980s. The airline industry usually promotes leaders from within, seeking the technical expertise needed to run the highly regulated and complex business.

Elliott in its presentation highlighted COO Andrew Watterson as the only member of Southwest’s executive team that had experience at another airline.

Southwest said in a statement that its board “is confident in our CEO and management’s ability to execute against 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.”

The carrier said Elliott first contacted it on Sunday and it is keeping an “open dialogue with our shareholders and value their perspectives related to enhancing shareholder value.”

Southwest shares are down by more than 50% as of Friday’s close from three years ago, when travel demand, led by domestic trips, was starting to come back. In contrast, Delta Air Lines shares are up around 10% over that period and United Airlines shares are down about 7%.

Shares of Southwest gained 7% Monday. The company had a market capitalization of $16.6 billion as of Friday’s close.

Southwest grew from a small Texas carrier more than 50 years ago into a massive domestic airline that carries more travelers within the country than any other. But the carrier has long stuck to a conservative business model, using one kind of plane, offering one class of service and not charging for checked bags, while rivals continued to hike their fees and more customers appear willing to pay up for pricier and spacious seats.

Elliott dismissed Southwest’s upgrades like bigger overhead bins, better Wi-Fi and in-seat power as signs the airline’s leadership is “focused on incrementalism rather than an unbiased evaluation of all available opportunities.”

Southwest’s leaders have said they are looking for new ways to drum up revenue to better compete with rivals that offer travelers more perks and products.

Jordan, who succeeded Kelly as CEO in February 2022, told CNBC in April that the carrier is considering ditching its single class of airplane seating and longtime boarding method.

“They missed those opportunities to give customers the option to spend more money with the airline,” said Henry Harteveldt, a former airline executive and founder of Atmosphere Research Group. “A good retailer … is always going to find ways to sell its customers more products.”

Elliott said it spoke with numerous former Southwest employees during an 18-month research period, according to a presentation. The activist also said it spoke with shareholders and surveyed more than 2,000 flyers to understand why consumers chose Southwest over other airlines, according to its presentation.

Southwest has struggled with manufacturing and certification delays at Boeing for new 737 Max planes, the newest models of the jets which the carrier exclusively flies, as well as shifting travel demand patterns after the pandemic.

The airline also faced a reckoning from a holiday meltdown at the end of 2022 that cost it more than $1 billion and forced the airline long known for good customer service to win over the flying public and make quick fixes to its internal staff scheduling software.

Southwest isn’t the only carrier facing activist pressure. Carl Icahn won two board seats at JetBlue Airways in February after taking a nearly 10% stake in the New York-based carrier.

Elliott’s campaigns at other companies have likewise centered on a change in leadership. Elliott’s second campaign at Crown Castle in 2023 and settlement agreement with automotive parts supplier Sensata earlier this year are just two instances.

In just the last few months, the activist has taken a $2.5 billion stake in semiconductor firm Texas Instruments, a $2 billion stake in Japanese conglomerate SoftBank and a $1 billion stake in mining concern Anglo American


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