Southwest Airlines is cutting flights to and from the world's busiest airport, another sign that the largest U.S. airline is making deep cost-cutting moves in the face of pressure from activist investors.
The Dallas-based airline is reportedly drastically cutting flights to and from Atlanta's Hartsfield-Jackson International Airport and cutting 300 pilots and flight attendants serving the area. The company memo was obtained by CNBC.
The job cuts came just a day before the company was scheduled to hold an investor briefing.
Southwest Airlines executives are under pressure from activist investor Elliott Investment Management to cut costs amid declining revenue.
Elliott, the hedge fund led by billionaire Paul Singer, which owns more than 10 percent of Southwest Airlines, escalated its boardroom battle with the airline on Tuesday, saying it plans to call a special shareholders meeting as early as next week to shake up the airline's management team.
The airline told employees that pilots and flight attendants would not be laid off, but that it would likely have to bid for work from other cities.
Southwest plans to reduce the number of gates at Hartsfield-Jackson from 18 to 11, according to a separate memo circulated by the airline's pilots union.
“While we try all we can before making difficult decisions like this, we cannot afford to continue to incur losses and are forced to make this change to restore profitability,” Southwest said in the memo.
“This decision is not a reflection on the performance of our employees. We are proud of the hospitality and efforts our employees have provided and continue to provide to our guests in Atlanta.”
Southwest Airlines warned employees last week that it will have to make “difficult decisions” in the near future to boost profits.
Southwest has so far resisted Elliott's calls for management changes, saying current Chief Executive Bob Jordan was the “right leader” to lead the airline back to profitability and boost its stock price.
The hedge fund blamed Jordan and other senior executives for the company's poor performance and launched a campaign to oust them.
The airline is pushing Southwest to make changes to how it operates and has laid out plans to replace two-thirds of the airline's 15-member board of directors.
Jordan is scheduled to speak at an investor briefing on Thursday to outline steps he is taking to turn the company around.
In response to Elliott's request for a special shareholder meeting, Southwest said its board would consider the request but accused the hedge fund of trying to disrupt investor meetings.
Southwest has been hit by several problems, including delays to Boeing deliveries and an industry-wide glut.
The company's operating profit margin fell from over 13% in 2019 to 0.2% in the first half of this year.
By comparison, Delta Air Lines' operating margin for the first half was 9.5% and United Airlines' was 7.4%.
In a letter to shareholders on Tuesday, Elliott accused the company of obstructing leadership transition.
“We do not support the company's current direction, which is planned ad-hoc by a group of executives hell-bent on self-preservation,” it said.
“The urgency of changing Southwest's management and executive leadership could not be clearer.”
Southwest Airlines said Tuesday that shareholders were willing to reach a compromise with Elliott, but that “accepting the demands of a single shareholder for absolute control of the company is no compromise.”
Southwest's last annual shareholder meeting was in May. The next one isn't scheduled until next spring.
With post wire
