Southwest Airlines LUV
Southwest, once a profit leader, now posts the worst margins of any major U.S. airline under entrenched insiders Kelly and Jordan; new leadership, a refreshed board and a strategic review unlock 77% upside to $49.
Thesis
Southwest's enterprise value has fallen 44% since 2019 and EBITDAR is on pace to be nearly 50% below 2018 despite record industry travel demand, leaving the stock in the bottom 5% of the S&P 500 over five years and below its March 2020 lows. Elliott blames a dated commercial strategy — no assigned seating, no premium products, no basic economy, no bag fees — that Executive Chairman Gary Kelly and CEO Bob Jordan have refused to evolve, alongside peer-worst unit-cost growth of 30% since 2018 and the December 2022 meltdown that stranded 2 million customers. Elliott demands an immediate Board refresh with independent directors holding airline operating experience, an externally-hired CEO, and a board-level Comprehensive Business Review of strategy, costs, network, capital allocation and technology. Restoring 19% best-in-class 2025E EBITDAR margins lifts the share price from $28 to $49 — 77% upside — and $3-4B of annual free cash flow.
SCQA
Southwest is the largest U.S. domestic carrier with 137 million customers, 819 aircraft and #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.
The model has stagnated: stock down >50% in three years, EBITDAR margins collapsed from best-in-class 21% to peer-worst 8%, unit costs up 30% since 2018, the 2022 meltdown stranded 2 million customers, and insider leadership has rejected every commercial innovation peers adopted.
Refresh the Board with independent directors who have airline operating experience, retire the Executive Chairman structure, hire a new CEO from outside Southwest, and launch a board-level Comprehensive Business Review covering commercial strategy, costs, network, capital allocation and technology.
Restoring 19% best-in-class 2025E EBITDAR margins lifts the share price from $28 to $49 — 77% upside (range 67%-87%) — plus $3-4 billion of annual free cash flow and roughly $790M of incremental annual employee profit sharing.
The three reasons
- 1
Southwest lost 50%+ of market value and EV is now below the value of its aircraft alone
- 2
From best-in-class to worst-in-class margins: 1,300 bps below 2018, 900 bps below peers
- 3
Insular leadership has rigidly rejected industry-standard commercial innovations for 15 years
Primary demands
- Significant Board change including new independent directors with external airline operating experience
- Replace Executive Chairman Gary Kelly and CEO Bob Jordan with new leadership from outside Southwest
- Retire the Executive Chairman structure
- Form a new Board-level committee to conduct a comprehensive business review of strategy and operations
- Modernize commercial strategy (assigned seating, premium products, basic economy, ancillary revenue)
KPIs cited
Pattern membership
Composition what's on the 49 slides
Slide gallery ·
Notes
Public unveiling of Elliott's Southwest campaign via dedicated 'Stronger Southwest' microsite (StrongerSouthwest.com) — co-branded yellow/blue palette mirroring Southwest's own visual identity, a signature Elliott rhetorical move that frames the activist as the true steward of the brand. Stake size NOT disclosed inside the document itself (Elliott had separately reported a ~$1.9B / ~11% economic interest in press around this time). Strong SCQA structure: Situation (legacy + scale p.6-7), Complication (margin/EV collapse p.17-22), Question (more time won't fix p.27), Answer (board + leadership + review p.41-46). Memorable rhetorical devices: 8-row red downward-arrow scoreboard (p.10), exit-sign metaphor (p.27), 'Worst' shareholder survey grid (p.38), Herb Kelleher 'if you don't change, you die' quote weaponized against current management (p.8), entrenched-views peer-checkmark matrix (p.31), and the +77% $28-to-$49 upside reveal (p.13). Heavy use of third-party validators (J.P. Morgan, Barclays, Cowen, Deutsche Bank, Melius, even Ryanair's O'Leary) and the CEO-quote-contradiction table on p.29 pairing seven optimistic Bob Jordan quotes against the cumulative 85% EBIT consensus decline. Valuation is multiple-comparison only (peer 4.8x EBITDAR); no DCF or sum-of-parts. Backed by 18 months of research, 130+ former-employee interviews, shareholder survey, and 2,000-person consumer study (p.5).