Southwest Airlines (NYSE:LUV) will hold its Investor Day tomorrow (Thursday), and it’s shaping up to be more than just a standard update. CEO Bob Jordan and his team have hinted at major changes in the works.
Barclays analyst Brandon Oglenski thinks that seat assignments, premium seating options and “potentially other product as well as network changes” will be key topics of focus during the event.
Oglenski has previously noted that successful execution of these enhancements could unlock an additional $2-4 billion in revenue. Moreover, these improvements would bring Southwest in line with competitors that have offered similar services for over a decade, if not longer.
In addition to product updates, management is expected to address network priorities, particularly in light of a “slower growth future.” This comes after the airline’s post-pandemic expansion into markets like Hawaii, where performance seems to be trailing, with yields approximately 40-50% below system average.
But there’s another reason why Oglenski expects Wall Street will be keeping a close eye on the proceedings. That is down to the “dueling narratives from an entrenched leadership team and activist investor Elliott seeking to overhaul the board and CEO position.”
Specifically, activist investor Elliott Investment Management continues to stir things up, and is pushing for a special meeting of LUV shareholders as early as next week. The goal is to replace several board members and remove CEO Bob Jordan from his position.
Against this backdrop, Oglenski thinks shareholders will need to choose which side they are on. “Investors must decide between the continuity offered with the existing leadership team that has yet to adopt product, network and process at a pace fast enough to maintain profitability in a changing industry backdrop or take a chance on a refreshed board to lead a business strategy and leadership review,” the analyst explained. “Nonetheless, we see all actions as likely leading to better margin outcomes for the once consistently profitable industry leader Southwest Airlines.”
All in all, Oglenski remains neutral on the stock, maintaining an Equal Weight (i.e. Hold) rating with a $27 price target, which implies an 8.5% downside over the coming months. (To watch Oglenski’s track record, click here)
Most analysts appear to share his cautious stance: the stock currently has 6 Hold ratings, 3 Buys, and 1 Sell, resulting in a consensus Hold rating. The average price target of $26.73 is practically the same as Oglenski’s objective. (See LUV stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
