Activist investor Elliott Investment Management is prepping for a heated proxy battle with Southwest Airlines (LUV). Elliott plans to replace ten of Southwest’s 15 board members and oust CEO Robert Jordan and Executive Chair Gary Kelly. The activist investor plans to convene a special shareholder meeting to vote on this proposal.
The ten board candidates proposed by Elliott are veterans belonging to the airline industry, technology, hospitality, regulatory oversight, and consumer-focused businesses. In fact, Elliott is advocating the names of Virgin America’s ex-CEO David Cush and Air Canada’s former CEO Robert Milton as board nominees. Elliott believes that given a choice, shareholders could elect a new board that “brings relevant expertise, fresh thinking and accountability.” As of date, Elliott has a 7% stake in Southwest, which, including derivatives, increases to an economic interest of roughly 11%.
Here’s Why Elliott is Pushing for Leadership Change
Elliott believes that Southwest’s current leadership needs to change to bring about meaningful transformation at the company. The activist investor has a three-point agenda to revamp Southwest, including a board overhaul, leadership change, and an in-depth business review. LUV shares have declined 23.8% in the past six months, as the carrier is navigating tough competition, declining airfares, and a delay in aircraft deliveries from Boeing (BA).
In July, Southwest Airlines announced strategic changes that are expected to boost its revenue and overall performance. These included offering assigned seats, extra legroom, and adding overnight flights, all of which were considered insufficient by Elliott.
The news of Southwest Airlines’ boardroom fight comes on the heels of Elliott’s win in replacing Starbucks’ CEO Laxman Narasimhan on August 13. Starbucks has roped in Chipotle Mexican Grill’s (CMG) CEO Brian Niccol as the coffee giant’s new leader.
Insights from TipRanks’ Bulls Say, Bears Say Tool
According to TipRanks’ Bulls Say, Bears Say tool, analysts are concerned about Southwest Airlines’ financial health as it guided for a Q3 FY24 loss. The Bears seem to be unconvinced about the impact of LUV’s recently announced revenue-boosting strategies and also highlighted the FAA’s (Federal Aviation Administration) ongoing safety audit.
On the other hand, Bulls are encouraged by the Q2 earnings beat and the expected benefits from the strategic initiatives.
Is Southwest a Good Buy Right Now?
With the activist drama on the cards and Southwest’s deteriorating performance, analysts prefer to remain on the sidelines. On TipRanks, LUV has a Hold consensus rating based on three Buys, nine Holds, and two Sell ratings. The average Southwest Airlines price target of $26.93 implies 5.9% upside potential from current levels. The upside appears limited, given the year-to-date loss of nearly 11% in the share price.
