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Elliott Investment Management LP announced Monday that it has acquired a $1.9 billion stake in Southwest Airlines, pressing the airline to implement significant leadership changes. However, Southwest Airlines quickly defended its current leadership team.

Elliott takes $1.9 billion stake in Southwest Airlines : Activist Investor's Demands

In a detailed letter to Southwest's board, Elliott criticized CEO Bob Jordan and Executive Chair Gary Kelly for overseeing a period of "severe underperformance." The letter called for new leadership "from outside of the company," a revamped board with "truly independent directors," and a "comprehensive business review."

"Southwest is a legendary airline with a proud history," Elliott partner John Pike and portfolio manager Bobby Xu wrote. "Today, however, poor execution and leadership's stubborn unwillingness to evolve the company's strategy have led to deeply disappointing results for shareholders, employees, and customers alike."

Elliott takes $1.9 billion stake in Southwest Airlines : Stock Performance and Potential

Following the announcement, Southwest Airlines' stock rose approximately 8.4% to $30.09 per share. Elliott believes that with the proposed changes, the stock could reach $49 per share within 12 months.

Criticism of Current Leadership

Elliott's letter highlighted Southwest's failure to "modernize," citing Jordan's "unacceptable financial and operational performance quarter after quarter." The letter pointed to a significant incident in December 2022 when nearly 17,000 flights were canceled, stranding about 2 million passengers. This debacle resulted in a $140 million fine for the airline.

"In a clear display of poor leadership, CEO Bob Jordan declined to testify in front of Congress after the meltdown, despite attending a company rally just 40 miles away in Baltimore the prior day," the letter said.

Elliott takes $1.9 billion stake in Southwest Airlines : Board Composition and Experience

Elliott also criticized the board's composition, noting that most members were selected by Kelly and that the senior executives lack adequate experience to enhance the airline's performance. "Of the eight most senior executives, only one executive has experience at another airline," the letter stated.

Elliott's Request for Collaboration

Elliott, based in West Palm Beach, Florida, and managing around $65.5 billion in assets as of Dec. 31, requested a meeting with the board at the "earliest convenience." The firm expressed its desire to collaborate with Southwest to "restore accountability and best-in-class financial performance for the benefit of the company's employees, customers, and shareholders."

Southwest Airlines' Response

In response, a Southwest spokesperson stated that the company was first contacted by Elliott on Sunday and looks forward to "better understanding their views on our company." The spokesperson defended the CEO and management, saying, "We maintain an open dialogue with our shareholders and value their perspectives related to enhancing shareholder value. The Southwest board of directors is confident in our CEO and management's ability to execute against the company's strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers, and deliver on our commitments to all of our stakeholders."