Southwest Airlines LUV
Southwest has the worst margins of any major U.S. airline under a 74-year legacy leadership team; a new outside CEO, refreshed board and modernized commercial strategy can deliver a $49 share price, 77% upside.
Thesis
Elliott owns roughly 11% of Southwest Airlines ($1.9 billion) and argues the inventor of the low-cost carrier model has been overtaken by peers under Executive Chairman Gary Kelly and CEO Bob Jordan, who together have spent 74 years at the company. Southwest shares are down more than 50% in three years, 2024 EBITDAR is expected to be nearly 50% below 2018 levels, management has revised guidance down eight times in 18 months, and leadership has ruled out industry-standard revenue levers such as assigned seats, premium products, basic economy and checked bag fees. The deck calls for immediate leadership change, board reconstitution with external airline expertise, and a Board-led comprehensive business review. Restoring best-in-class 19% EBITDAR margins by 2025 implies $49 per share, 77% upside, plus roughly $790 million of additional annual employee profit-sharing.
SCQA
Southwest is the largest U.S. domestic carrier by passenger volume, inventor of the low-cost model, profitable for 47 consecutive years pre-COVID, with a net-cash balance sheet, $17B of unencumbered assets and #1 share in 22 of the top 50 cities.
Under a 74-year legacy leadership team, Southwest has the worst margins of any major airline, eight negative guidance revisions in 18 months, a December 2022 operational meltdown that stranded 2M customers, and has rejected every industry-standard revenue initiative adopted by Delta, United and American.
Reconstitute the Board with independent directors who have external airline experience, replace CEO Bob Jordan with an outside hire, retire the Executive Chairman role, and form a Board-level committee to run a comprehensive strategy, cost and network review.
Restoring EBITDAR margins to peer-best 19% by 2025 implies a $49 share price, 77% upside from $28, c.$3-4B of annual free cash flow, and roughly $790M of incremental annual profit-sharing for Southwest's frontline employees.
The three reasons
- 1
Southwest shares have lost over 50% in three years and now sit below March 2020 COVID lows
- 2
2024 EBITDAR expected ~48% below 2018 while Delta, United and American exceed pre-COVID profits
- 3
Restoring best-in-class margins with new leadership implies $49/share, 77% upside from $28
Primary demands
- Reconstitute the Board with new independent directors who have external airline experience
- Replace CEO Bob Jordan with an external hire and retire the Executive Chairman role
- Launch a comprehensive Board-led business review of strategy, costs, network, capital allocation and technology
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- Elliott's own prior engagements: AT&T, BHP, CN, Crown Castle, eBay, Hess, Howmet Aerospace, Marathon, NRG, Phillips 66, Salesforce, SAP
- Herb Kelleher 2014 quote on necessity of change invoked as internal precedent
Notable slides (6)
Notes
Folder is labeled 14_Icahn but the document is an Elliott Investment Management campaign against Southwest Airlines — folder misclassification. This is an SEC DFAN14A proxy solicitation bundle (filed 2024-08-13) containing: (1) Elliott's June 10, 2024 letter and 'Stronger Southwest' 50-slide presentation to the Board, (2) a July 8, 2024 follow-up letter responding to SW's poison pill and handpicked director appointment, (3) press releases. Letters signed jointly by John Pike (Partner) and Bobby Xu (Portfolio Manager). Campaign branded with its own 'Stronger Southwest' identity/logo mashing Elliott's blue with Southwest's yellow/red. Strong CEO-quote-contradiction chapter (p40 shows seven consecutive quarters of Bob Jordan calling performance 'great' while EBIT consensus collapsed -85%). Herb Kelleher 1971 founder quote used as internal-precedent rhetorical weapon. Main deck cover is PDF page 12; closing summary with before/after on p60; Next Steps staircase on p61. Presentation_date set to 2024-06-10 (date on main deck cover) even though the DFAN14A filing itself is dated August 13, 2024.