Summary
- Southwest Airlines Pilots Association (SWAPA) has discussed the recent conflict between the airline’s management and Elliot Investment Management.
- Meanwhile, the investment firm has responded to the ‘poison pill’ that was set up by Southwest Airlines, saying that this proved that the airline’s leadership needed change.
- Nevertheless, SWAPA has reiterated that whatever happens, changes will be coming to the carrier’s business model.
Southwest Airlines Pilots Association’s (SWAPA) latest podcast, ‘The SWAPA Number,’ discussed the actions taken by Elliot Investment Management and the airline’s response, with the pilot union providing its point of view about the situation.
Meeting with Elliot Investment Management
According to Casey Murray, the president of SWAPA, Elliot Investment Management has been actively communicating with the union, including forwarding draft letters that eventually were published publicly in response to Southwest Airlines’ poison pill and the announcement of Rakesh Gangwal’s addition to the board of the airline.
Photo: Markus Mainka | Shutterstock
Gangwal has a long history in aviation, including being the chief executive officer (CEO) of US Airways and the co-founder of IndiGo, which has become one of the largest airlines in the world in terms of market capitalization.
Nevertheless, Murray added that SWAPA and Elliot Investment Management had a meeting scheduled on July 15 in Dallas, Texas, United States, where both the airline and the union are based.
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Refreshing communication
While the union’s president reiterated that the investment company was not a friend of labor, Elliot Investment Management has been deeply involved in analyzing the company, adding that they have done their homework about the carrier.
As such, Murray remarked that the investment company’s communication with the pilot union has been “refreshing.”
“It is collaborative. […] they are asking us for some input as well, they are also laying out their plans a little bit more in-depth, and each time we meet with them, we get a little more information. So, it is good to continue the dialogue that was something they committed to, and they have been very forthcoming and actually very prompt in reaching out any time there has been a new development.”
In comparison, Murray detailed that communication with Southwest Airlines’ management has been difficult, with the airline making it clear to the union that SWAPA was just a “junior partner at best.” At worst, the union’s executive described the relationship with the airline as “disdain.”
Photo: Elliott Cowand Jr | Shutterstock
Exemplifying their difficulties, Murray said that the union had several confidential meetings with Southwest Airlines, where the airline’s management was not completely open with SWAPA. Sometimes, the carrier would make announcements the next day after a meeting, which included cases of schedule reductions or closed bases.
“It is very hard to really feel that there is any type of collaboration [with Southwest Airlines management – ed. note].”
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Different perspectives on how to turn Southwest Airlines around
Murray continued that Ellot Investment Management, Southwest Airlines, SWAPA, and even Wall Street investors all know that the airline needs to introduce changes to turn its fortunes around. The union’s president noted that the carrier has admitted to the revenue and technological issues that have plagued the airline for years.
“There is going to be change. There is a difference of opinion amongst all parties […] how that actually takes place. It was good to see that Southwest Airlines has been prodded a little bit into making some fundamental changes to address [its] lagging revenue and [its] lagging initiatives.”
At the same time, the ‘poison pill’ that was set up by Southwest Airlines’ board of executives signaled that the board does not want outside interference, according to Erich Schnitzler, the chair of the economy and financial analysis committee of SWAPA.
Meanwhile, Elliot Investment Management responded to the ‘poison pill’ in a letter only solidified the case for leadership change at the carrier, noting that even Gangwal has supported the status-quo of the company.
Still, Gangwal’s appointment, during which the airline cited the executive’s experience in travel technology and the industry, will hopefully improve Southwest Airlines’ situation.
Hank Ketchum, the second vice president of SWAPA, added that the addition of an experienced airline executive would not change how Elliot Investment Management has looked at the board, namely that the investment company has expressed that it would overhaul the board for the carrier to avoid continuing on its current path.
Photo: Angel DiBilio | Shutterstock
Ketchum and Schnitzler warned of a potential proxy battle happening at Southwest Airlines, which could include Elliot Investment Management and other shareholders calling a special meeting to nominate new directors for the board.
The two SWAPA executives estimated that the potential proxy battle could happen sometime in the fall. Southwest Airlines has scheduled an Investor Day on September 26, where the airline should introduce planned strategic initiatives to improve its revenue performance.
One of those potential changes would be how the airline earns revenue from its cabin, overhaul its free-for-all boarding approach, where passengers choose their seats when they board the airline’s all-Boeing 737 fleet.
Furthermore, Southwest Airlines’ executives have admitted that the carrier has performed poorly financially. In an open letter, Elliot Investment Management has blasted the airline’s management for eight guidance reductions in the past 18 months, including its latest Q2 2024 guidance reduction.
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Changes are coming
Murray emphasized that there was a reason why an activist investor has been involved in the airline, namely that Elliot Investment Management has identified continuous failures in the management of Southwest Airlines. SWAPA’s president concluded that,
“[…] the analytics of [Southwest Airlines] finances and where our peers are, and where Southwest is. All of it really speaks to why Elliot [Investment Management] is here. [SWAPA does] want to see the change. We have been calling for this change for years as far as the business model and changing, and adapting, and innovating a business model that evolves with where the industry has gone.”
Photo: Robin Guess | Shutterstock
Ending the podcast, Murray reiterated that the airline will see changes, noting that there was an agreement among all parties that change was needed at Southwest Airlines, especially when it comes to the carrier’s revenue and business model.
However, the leader of the union promised that SWAPA would be involved in the process, defending its collective bargaining agreement (CBA) with the airline as a labor collective.
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