Southwest shareholder battle could impact Las Vegas, analyst says

An analyst watching a hedge fund’s bid to replace top executives at Southwest Airlines says 115 airports in the U.S. and the Caribbean, including Las Vegas, should be wary of changes being proposed for what is Harry Reid International Airport’s busiest commercial air carrier.

An Aug. 26 letter to Southwest shareholders from John Pike, a partner, and Bobby Xu, a portfolio manager, for West Palm Beach, Florida-based Elliott Investment Management suggests that Southwest’s foundering stock price could be fixed with the removal of Executive Chairman Gary Kelly and CEO Bob Jordan.

Southwest shares have lost 50 percent of their market value over the past three years. Shares closed up 66 cents, 2.3 percent, to $29.58 a share Tuesday in below-average volume. It’s at the midrange of its 52-week performance ranging from $21.91 to $35.18 a share.

As the holder of more than 10 percent of Southwest’s stock, Elliott could force a shareholder meeting and attempt to oust Kelly and Jordan, who in the past have supported Southwest operations in Las Vegas by making the city its No. 2 destination, adding capacity with dozens of flights to multiple destinations and promising to add red-eye flights from Reid beginning next year. During Kelly’s oversight, Southwest made Las Vegas one of its pilot and flight attendant bases. The company also is attempting to get Department of Transportation approval to begin nonstop flights between Las Vegas and Washington D.C.’s Reagan National Airport, a highly restricted route.

But Evergreen, Colorado-based aviation consultant Mike Boyd said Elliott has no plan to make Southwest better and that potential independent board members Elliott plans to nominate to the company’s board of directors wouldn’t necessarily make Southwest more profitable.

“There are people banging at the airline’s gate, demanding that it change the way it operates,” Boyd said in his weekly Touch & Go newsletter. “It’s a lot more at stake than just the issue of non-assigned seats. It’s about installing whole new philosophies and strategies on the type of airline Southwest will be in the future.”

Assigned seating coming

Southwest recently announced that it intends to change the open-seating boarding system it has used since its inception to assigned seating next year. When that announcement was made earlier this summer, Southwest said the change is in response to demands for change from its customers.

Southwest is by far the busiest carrier at Reid with more than one-third of passengers flying the Dallas-based carrier. In 2023, Southwest carried nearly 21 million passengers to and from Las Vegas, a 15.6 percent increase from 2022.

Elliott representatives are scheduled to meet with Southwest executives Monday.

A spokesperson for the airline said Tuesday that it may discuss details of the outcome of that meeting later this month.

“We remain prepared to meet with Elliott next week and look forward to sharing details on our continued transformation at our Investor Day on Sept. 26,” the spokesperson said in an email.

Elliott has determined that how Southwest is being run today must change,” Boyd said. “Don’t think for a second that this does not include the airline’s route-planning strategies.

“As it stands today, Elliott has not proposed or even identified any of the fundamental changes that it claims are needed to get profits up and stockholders basking in higher share prices,” he said. “And likely a different route map.”

Boyd said the issue is that Elliott has determined that the way Southwest has been managed and strategized by its current leadership are the reasons that its stock price has not “performed,” and profitability has lagged.

Elliott’s beefs

“As large investors in Southwest with a significant stake in its future, we are confident that a reconstituted board can find the right executive leaders from outside of the company who will preserve all of the unique cultural attributes that have made Southwest great while fixing the more recent problems that have caused it to underperform its vast potential,” the Elliott letter to investors says.

“Southwest’s leadership remains unwilling to admit its mistakes,” the letter says. “It continues to say that it ‘has the right strategy, the right plan and the right team,’ and it claims that things like the sudden announcement of assigned seating, which customers have favored for years, had nothing to do with Elliott’s recent demands for accountability. Instead, we are supposed to believe that these things were part of Mr. Jordan’s plan all along and the timing mere coincidence. As we said when the assigned seating change was announced, ‘too little, too late’ is not a strategy. In fact, the unilateral implementation by Southwest’s current leadership of a series of hasty, adhoc changes designed to boost its stock price in the short term represents a significant risk to the company’s long-term well-being.

“We have seen this movie before, and it rarely ends well, because there is no one more short-term-oriented at the expense of future value than a beleaguered CEO trying to preserve his or her job.”

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on X.