Southwest’s Revenue Outlook Cuts Prompt Further Criticism From Activist Investor Elliott Management
Summary
- Southwest Airlines cuts Q2 revenue forecast due to high costs and changing booking patterns.
- Elliott Investment, a major shareholder, demands a shake-up in the airline’s business model and management.
- Southwest disputes Elliott’s claims, citing its successful, simple business model and confidence in leadership.
At a time when other airlines are recovering from the pandemic and benefiting from a return to international travel, Southwest Airlines has cut its second-quarter revenue forecast. Passengers are flying again, but high costs and capacity growth have impacted fares and profits. The investment fund, Elliott Investment, has bought shares in Southwest Airlines and is demanding a shake-up in the airline’s business model and management.
Southwest Airlines trims 2nd quarter outlook
Southwest attributed the cut to changing booking patterns. It states that the revenue the airline gets per seat per mile will fall between 4% and 4.5% compared to the second quarter of last year. It had previously forecast a 1.5% to 3.5% decline.
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“The reduction in the Company’s RASM [revenue per available seat mile] expectations was driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment.” – Southwest Airlines
Additionally, Southwest expects unit expenses (excluding fuel) to have risen as much as 7.2% year-on-year. It had previously expected these expenses to have remained flat.
Still, accounting is sometimes counterintuitive, and Southwest expects its capacity to rise as much as 9% (it had previously expected flat growth). It is also still forecasting record quarterly operating revenue in the second quarter. Southwest stated, “The Company’s second quarter 2024 operational performance, thus far, continues to be strong with minimal cancellations.”
Related
Southwest Airlines’ New $2 Billion Investor Wants Big Changes
If it were to come to fruition, Elliot Investment Management would become the largest institutional shareholder in Southwest Airlines.
Pressure from hedge fund Elliot Management
Elliot Management is an investment management fund and one of the world’s largest activist funds. As an activist fund, it purchases share shares in companies and then leverages its influence to demand changes in the organization. Elliott Management has bought into Southwest and is applying pressure to get CEO Bob Jordan and Chairman Gary Kelly replaced.
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So far, Elliott has acquired a massive $1.9 billion stake in Southwest Airlines and has been pushing for changes (Southwest has a market capitalization of around $16.6 billion).
Elliott repeated its calls on Wednesday following the release of disappointing second-quarter numbers. Elliott said in a statement that the lowered outlook is “yet another example of fundamental leadership change urgently needed at Southwest.”
Elliott asserted, “Southwest is led by a team that has proven unable to adapt to the modern airline industry; the Company’s release today seems to admit as much.” Elliot claims that Southwest has fallen from being a best-in-class airline to being one of the industry’s biggest laggards.
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However, Southwest has hit back at the statements, claiming that its simple business model has kept the large airline profitable for five decades and expressed confidence in the existing leadership. Southwest and Elliott have been in a back-and-forth over the company’s leadership for some time. Time will tell whether Elliot can leverage its position to enact meaningful changing in Southwest or not.
