Elliott Investment Management reported on Monday that it holds about $1.9 billion worth of shares in U.S. airline Southwest Airlines and has called for changes in the company’s management.
Southwest Airlines shares rose 7% to close at $29.70 on Monday.
The activist investment management firm said Southwest’s “poor execution” and management’s “stubborn refusal to change strategy” had led to a disappointing outcome for shareholders, employees and customers.
“We believe that new leadership is needed at Southwest Airlines,” the company said in a letter to the airline’s board of directors.
Southwest Airlines did not immediately respond to a request for comment.
Dallas-based Southwest Airlines is a loyal Boeing customer but is reeling from the company’s ongoing safety crisis and has warned of a hit to revenue as it expects to receive just 20 Boeing planes this year, less than a quarter of the number it had initially expected.
Southwest Airlines had planned to start operating the MAX 7, the smallest of the MAX fleet, this year, but FAA certification is now in uncertainty after Boeing withdrew its request for a safety waiver.
Southwest Airlines said Boeing delays have forced it to slow its growth plans, citing “significant challenges” for this year and next.
Elliott, known for pushing reforms to increase shareholder returns, said Southwest CEO Bob Jordan had delivered “unacceptable” financial and operating results quarter after quarter, leading to seven downward guidance revisions in the past 17 months.
The committee called for a complete review of the airline’s board, saying it had “failed to hold management accountable for poor performance and failed to facilitate (or allow) the necessary strategic evolution.”
Elliott said Southwest’s board, which requested the meeting, currently has no directors with outside airline experience and that most of the independent directors are appointed by board chairman Gary Kelly.
“The direction from the board is clear: continue doing things the way you always have,” the statement said.
Before Monday’s close, Southwest Airlines shares had fallen nearly 4% this year, while the S&P 500 index had risen roughly 12%.
“Activist interest in Southwest Airlines is not surprising given the company’s very strong franchise with valuable tangible and intangible assets,” Raymond James analyst Savanti Sis wrote in a note.
But Southwest is not the only airline struggling with Boeing delays, as rival United Airlines also suffered a $200 million loss in the first quarter.
Still, the airline industry expects demand for travel to be strong and robust over the summer.
Southwest Airlines shares are trading at about 19.52 times forward earnings, well above United Airlines’ 4.74 times and the industry average of 7.19 times.
