Southwest Airlines LUV
Southwest's 47-year profit streak has collapsed into worst-in-class margins under entrenched leadership; refreshing the board and hiring an external CEO unlocks 77% upside to $49.
Thesis
Southwest Airlines, once the industry's margin leader with a 47-year profit streak, has shed over 50% of its market value in three years and now posts the worst EBITDAR margins of any major U.S. airline (8% vs Delta's 17%), driven by a dated commercial strategy, repeated cost-guidance misses and unprofitable capacity growth into markets like Hawaii. Elliott blames Executive Chairman Gary Kelly and CEO Bob Jordan — cumulatively 74 years at the company — for rigidly defending a model the industry has long abandoned (no assigned seating, no premium product, no bag fees, no basic economy). The deck demands a board refresh with independent airline experience, an externally hired CEO, and a comprehensive business review targeting 19% EBITDAR margins in 2025E, which Elliott argues unlocks 67-87% upside to a $46-$52 share price versus $28 today.
SCQA
Southwest is the largest U.S. domestic carrier — 137 million customers, 121 destinations, 819 aircraft, #1 share in 22 of the top 50 cities — built on a pioneering low-cost model that delivered 47 consecutive years of profitability before 2020.
That model is now outdated: management has ruled out assigned seating, premium, basic economy and bag fees even as peers adopted them, producing worst-in-class 8% EBITDAR margins, seven negative guidance revisions in 17 months and a 44% enterprise-value decline since 2019.
Refresh the board with independent directors who have external airline experience, replace Executive Chairman Gary Kelly and CEO Bob Jordan with a CEO recruited from outside the Company, and commission a board-level comprehensive business review of strategy, costs, network and capital allocation.
Restoring best-in-class EBITDAR margins of 18-20% by 2025E drives 67-87% share-price upside to $46-$52 versus $28 today, plus $3-4B of annual free cash flow and a ~$790M lift in annual employee profit sharing.
The three reasons
- 1
Southwest's outdated strategy collapsed margins from best-in-class 21% to worst-in-class 8%
- 2
Insular leadership has ignored years of investor calls and revised guidance down 7 times in 17 months
- 3
New leadership and modernized strategy unlock 67-87% share-price upside ($28 to $46-$52)
Primary demands
- Significant board change including new independent directors with external airline experience
- Replace Executive Chairman Gary Kelly and CEO Bob Jordan with leadership recruited from outside the company
- Launch a comprehensive board-level business review of commercial strategy, unit costs, network, capital allocation and technology
- Modernize commercial strategy (assigned seating, premium products, ancillary revenue, basic economy)
KPIs cited
Pattern membership
Composition what's on the 49 slides
Slide gallery ·
Notes
Initial thesis deck for Elliott's 'Stronger Southwest' campaign, anchored on a dedicated StrongerSouthwest.com microsite with a custom logo co-opting Southwest's own blue/yellow/red brand palette. Grounded in 18 months of research, 130+ former-employee interviews, an independent shareholder survey, and a 2,000-respondent customer study. Strongest rhetorical moves: (1) a 'Today: Southwest is Outdated' slide built entirely from third-party quotes (Barclays, Ryanair's O'Leary, J.P. Morgan); (2) a checklist matrix on p31 where Delta/United/American tick every commercial innovation box while Southwest has 'Absolutely never' / 'not what we do' quotes; (3) a CASMx timeline on p35 pairing CFO Tammy Romo's July 2023 'absolutely committed to driving cost down' with the April 2024 +7-8% guide; (4) the aircraft-worth-more-than-EV framing on p18 echoes the McDonald's real-estate trope. Closing 'Next Steps' staircase (p50) sets a year-end-2024 deadline. No stake percent disclosed in the document itself.