Summary
- Elliot Investment Management has reportedly built up a substantial shareholding in Southwest Airlines, looking to make changes within the airline.
- As of March 31, the largest institutional shareholder was Vanguard Group, owning 11.29% of Southwest Airlines’ shares.
- Southwest Airlines has admitted that it was studying changes to its boarding and cabin experiences.
Reports have indicated that Elliot Investment Management, an activist investor with around $65.5 billion in assets, has built up an around $2 billion stake in Southwest Airlines, with the company looking to spur changes within the airline to recover its share price, which has continued to go down since the year began.
Largest institutional holder
According to a report by The Wall Street Journal, Elliot Investment Management has purchased Southwest Airlines shares worth around $2 billion and plans to reverse the stock’s price trend. When the markets closed on June 7, 2024, the airline’s stock was at $27.75, down 0.36% from its opening price. Year-to-date (YTD), the stock’s price is down 3.91%, with its price peaking at $34.83 when the markets closed on March 7. Since then, the price has only gone down, with the airline’s shares closing at $25.51 on May 29, its worst price YTD.
Photo: marchello74 | Shutterstock
As of March 31, 2024, when the airline’s Q1 ended, the largest institutional shareholder was Vanguard Group, with 67.57 million shares that were valued at $1.8 billion, granting the company an 11.29% stake in Southwest Airlines. In total, four institutions held a stake worth more than $1 billion, with Blackrock being near the sum, with its 33.45 million shares being valued at $928.1 million.
As such, if Elliot Investment Management has taken an around $2 billion stake in Southwest Airlines, it could potentially become the largest institutional shareholder in the carrier. According to the investment firm’s website, some of its focus elements included an opportunistic approach and the creation of value for its investments.
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The airline is currently aiming to improve its value for shareholders and stakeholders.
Studying customer preferences
However, when the airline posted its Q1 results, Bob Jordan, the president and chief executive officer (CEO) of Southwest Airlines, admitted that the airline underperformed during the quarter. As a result, the carrier was making changes in areas it could control, including the end of operations from four airports.
“Additionally, we are evaluating options to enhance our Customer Experience as we study product preferences and expectations, including onboard seating and our cabin. And, we are implementing cost control initiatives, including limiting hiring and offering voluntary time off programs.”
Photo: Vincenzo Pace I Simple Flying
Jordan highlighted that the carrier’s financial struggles were partly due to delivery delays from Boeing and in part to rising costs during the past few months, especially as it has signed labor agreements with 11 out of 18 of its labor groups. Its operating expenses grew by 12% year-on-year (YoY) to $6.7 billion.
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Southwest Airlines revealed that it has entered into another agreement to amend the contractual delivery schedule with Boeing.
Sharing plans in September
The CEO noted that the airline plans to share many of its plans during its Investor Day in September. Before that, Southwest Airlines should publish its Q2 2024 results – last year, the carrier posted its Q2 results in August. Nevertheless, Jordan had a bit to add during the analysts’ call for Q1 2024.
“Separately, we are considering more transformational options and follow-on initiatives. That includes work previously underway to study customer preference around seating and our cabin. It’s been several years since we last studied this in-depth, and customer preferences and expectations change over time.”
Jordan added that Southwest Airlines was also exploring any potential operational and financial benefits such changes could bring to the airline. The CEO continued that the airline has been studying changes around its cabin experience for a while, noting that its current onboard experience was designed when load factors were lower.
Photo: Southwest Airlines
Jordan added that as load factors have increased, customer expectations have changed. According to the executive, the airline had nothing to report but teased that preliminary indicators looked “pretty darn interesting.” Previous reports have indicated that Southwest Airlines showed the cabin changes to customer focus groups, which included the cabin being split into four sections and all four bundle fares seeing changes regarding the benefits that customers could enjoy when booking these tickets.
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