Southwest Shares Soar as Activist Investor Calls for CEO’s Ouster

Shares of Southwest Airlines surged by 9% on Monday, marking their largest single-day gain in nearly four years. The increase came after activist investment firm Elliott Investment Management disclosed a substantial $1.9 billion stake in the company, representing about 11% ownership, and called for the removal of the airline’s CEO and board chair.

Southwest’s shares rose to $30.25 on Monday morning, signaling the airline’s most significant one-day leap since November 2020. Elliott Investment Management conveyed its sizable stake and demand for change in a letter to the airline’s board, criticizing what it described as “poor execution” and the leadership’s resistance to evolving its business strategy, which has led to disappointing results for shareholders, employees, and customers.

The activist firm urged Southwest to promptly replace CEO Bob Jordan and board chairman Gary Kelly, whom they accused of overseeing a period of significant underperformance. Jordan assumed the role of CEO in February 2022, succeeding Kelly, who had served in the position for approximately 17 years.

Analysts are divided on whether a management change is imminent at Southwest. Savanthi Syth, an analyst at Raymond James, noted that while some within the company believe leadership change is necessary for meaningful transformation, it remains uncertain if such a change will occur.

In response to Elliott’s actions, Southwest expressed confidence in Jordan and the management team’s ability to execute the company’s strategic plan and deliver long-term value to shareholders. The airline revealed that Elliott had first reached out to them on Sunday.

A surprising aspect of this development is that Southwest’s share price has plummeted by over 50% since April 2021, indicating significant challenges faced by the airline. This year, Southwest has reported lower-than-expected earnings and profits, citing delayed aircraft shipments from Boeing as a key factor. The airline incurred a first-quarter loss of $231 million, a 45% decline from the $159 million loss reported in the same period last year. In response to the Boeing delays, Southwest revised its delivery expectations for the 737 Max jets, reducing the number from 79 to 20. Additionally, the airline announced plans to eliminate 2,000 jobs and cancel service to four airports as part of its efforts to navigate the challenges posed by these delays.