As I mentioned during the coverage of the airline’s investor day, Elliott forces changes at Southwest. Luckily, Elliot didn’t quite get the changes they were after, and there’s still hope for Southwest’s future. However, the risk of them being guttered still remains far higher than before.
Southwest Airlines is in a fight for their life. As I covered before, Elliot Investment Management has taken an activist stance with the airline, acquiring more and more shares so that they can force their own agenda, which is to maximize share price. And if companies like this get their way, things won’t end well for Southwest.
Elliott Forces Changes at Southwest
Southwest Airlines is unique among airlines in the U.S. As we all know, they offer two free checked bags to all and have more pitch in their all-economy configurations than other airlines in the U.S. Their financial position hasn’t been the best as of late, though they’re not nearly as bad as others like JetBlue, Hawaiian, or Spirit. However, activist investors have taken interest in them, which has forced the airline to struggle to maintain their identity. Unfortunately, Elliots forces changes at Southwest after attaining over 10% ownership of the airline.
So, what kind of changes are we talking about here? Board Chairman, Gary Kelly, is said to be stepping down next year, while six Board members will voluntarily vacate their positions after the November 2024 meeting. For a point of reference, Southwest’s current Board consists of 15 directors. This means that 40% of the Board is changing later this year, which will give Elliott a chance to get their own people (or people aligned with their cause) into those positions. And if they do, that’ll give them more leverage to see their demands met. Thankfully, though, CEO Bob Jordan has been spared. For now.
As a reminder, Elliott’s goal is to transform Southwest into another American. They want to do away with free checked bags, implement basic economy, increase seat density, and cut unprofitable routes, regardless of long-term plans for them.
Free Checked Bags
While there were different rumors out there as to how checked bags will be handled as Elliott forces changes at Southwest, none of them came true. Thankfully, airline executives say that free checked bags are here to stay. And, yes, they mean two free checked bags for all. At least, for now. So long as Elliott doesn’t gain control, this is safe for now.
Basic Economy
Another rumor being tossed around out there is making a Basic Economy fare, which will eschew won’t let you pre-assign a seat, forces you to board last, and bars you from being able to bring aboard a full-size carry-on. This is a fairly punitive fare type, which isn’t necessarily what other airlines are doing anymore, and this likely won’t come to pass.
Elliott Forces Changes at Southwest, Final Thoughts
The above are, again, just rumors that are swirling around out there. But, from what we know thus far, it makes sense. As Elliott forces changes at Southwest, they’ve made it clear that they want to make the airline into a clone of others in the pursuit of stock return. That’s it. So, I hope that the recent changes are enough to appease Elliott for the time being. At least until Southwest can see its current plans to fruition. If not, then the airline will surely become shell of what it once was.