Activist investor Elliott Investment Management, which holds an 11% stake in Southwest Airlines, intends to call a special meeting at the Dallas airline in "the coming weeks" - possibly "as soon as next week", it said in an open letter on September 25, 2024. It comes ahead of Southwest's investor day on September 26, 2024.
The investor crossed the 10% stake threshold in late August, allowing it to call a special meeting. Elliott said there is an "urgency" to make changes to management at Southwest.
"We will be formally requesting a special meeting to provide you with a choice between the new directors that we have put forward... or a board that lacks relevant experience and has pre-committed itself to supporting failed CEO Bob Jordan," said Elliott.
The activist investor claimed Southwest has failed to collaborate with it, and instead have "chosen a go-it alone path with the goal of obstructing a leadership change". It cited the US airline deploying a 'poison pill' in July, as well as it "hastily" recruiting a new director. Executive chairman Gary Kelly will voluntarily retire from his position effective immediately after the 2025 annual meeting.
Management from the companies met on September 9, with the airline subsequently shaking up its board. The activist investor wants to nominate 10 members of the board to the airline's board of 15 members.
Southwest also shook up its product offerings with red-eye flights and also introducing premium seating options. Elliott said these changes were "half-baked".
The investor also urged Southwest shareholders to protect their investments, claiming the airline may use a "false record dates" tactic.
"'False record dates' can be a defensive strategy used to disenfranchise shareholders by not allowing investors the opportunity to get their shares into a voteable position prior to the record date," Elliott explained.
The tactic will apparently allow Southwest to set its actual record date in a short time window with Elliott stating could be the very same day. This would leave some Southwest shareholders unable to vote their full share position at the special meeting, the investor said.
"We strongly urge all Southwest shareholders – especially shareholders who engage in share lending or authorise their brokers to engage in share lending – to work with their banks and brokers as soon as possible to confirm that they are able to vote all their Southwest shares by no later than October 7," said Elliott. The date is the next so-called 'false record date' set by the airline.
The airline also said in a stock filing on September 25, 2024, that it has dismissed the shareholder derivative suits. These were brought against the company following Southwest's December 2022 IT 'meltdown'. The incident has been a key talking point for Elliott.
"Since about January 24, 2023, the company’s senior officers and the board have received multiple derivative demand letters from legal counsel for purported Southwest shareholders demanding that the board investigate claims, initiate legal action, and take remedial measures in connection with the service disruptions occurring at Southwest in December 2022," Southwest read in the filing.
A special litigation committee was formed to conduct an inquiry regarding the claims and allegations. It concluded in its report, delivered to Southwest and the board on September 23, 2024, that it was "not in the best interests of the company" to pursue the claims, recommending the dismissal of the actions.
The Texas-based company plans to follow the guidance and move to dismiss the case.
Ahead of its investor day, Southwest appointed Robert Fornaro to its board of directors on September 26, 2024. He previously served as president and CEO of Spirit Airlines from 2016 through 2018. Kelly said Fornaro will provide an "important perspective" on the airline's transformation plan.
In addition, the airline raised its third quarter guidance. It now expects to see revenue per available seat mile (RASM) to be up 2-3% over last year, having previously forecast to be flat to down 2%.