Southwest Will Never Be The Same Again
Guest Post by Dennis Miller at Miller On The Money
I was a road warrior. Jo and I honeymooned, using frequent flyer miles to fly first class from Fort Myers to Honolulu. After our honeymoon, we had enough miles for nine more trips.
I enjoy Southwest Airlines. They started small, operating within Texas, and were unique and reliable. Flight attendants, with hot pants and boots, and a great sense of humor made them a fun airline. They’re now the 4th largest US airline, while still maintaining much of the unique culture.
This Newsbreak headline, “Southwest Will Never Be The Same Again”, caught my eye:
“Whatever you thought you knew about Southwest Airlines is about to change.
The airline…revealed a dramatic turnaround plan, scrapping its unique playbook of more than 50 years in favor of an airline that largely resembles most of its peers.
…. Executives laid out plans for assigned seating, extra-legroom seats for purchase,…and other behind-the-scenes initiatives designed to increase revenue and turn around an underperforming stock price.
…. Despite pressure from an activist investor, Southwest is not giving up its famous two free checked bags.”
Activist investor??
AP News reports:
“Elliott Investment Management, a hedge fund urging Southwest Airlines to dump its CEO and chairman.
The move gives Elliott, the Paul Singer-led investment fund, more leverage in its proxy fight heading into a meeting with Southwest officials….
Elliott said in a regulatory filing that it owns more than 61 million shares, at least 10% of Southwest. …. That gives Elliott the power to call a meeting at which shareholders could vote on board candidates.
Elliott has proposed a slate of 10 candidates, including former CEOs of other airlines, for Southwest’s 15-member board.”
AP adds:
“(Quoting Elliott) ‘The urgency of change is underscored by the substantial continued deterioration in Southwest’s performance.” …. Elliott has previously called for the replacement of CEO Robert Jordan and Chairman Gary Kelly, whom it accuses of causing Southwest to lag behind changes in the airline industry.
…. Elliott has previously pressured other companies that it deemed underperformers to make management changes. Starbucks announced Tuesday that it was replacing its CEO about two months after Elliott began advocating for new leadership.”
AP explains the battle:
“Southwest had contemplated an overhaul for months, but the push for radical change became even more important to management this summer, when Elliott Investment Management targeted the company for its weak financial performance in recent years.
The hedge fund blames Southwest leaders, portraying them as hidebound and insensitive to changing consumer tastes. Elliott…wants to replace Jordan and most of the Southwest board.
The hedge fund dismissed Southwest’s turnaround plan as too little, too late.
…. (Quoting CEO Jordan) ‘We do not believe that a proxy fight is in the best interest of the company, and we remain willing to work with Elliott on a cooperative approach.’
Before Thursday’s event started, Southwest announced a $2.5 billion share-buyback program designed to make existing shares more valuable.”
Here’s my scorecard.
An activist hedge fund with 10% of Southwest’s stock demands major changes to improve revenue and their “underperforming stock price” – including controlling 2/3 of the board of directors. Southwest tries to mollify them by announcing changes and a $2.5 billion share-buyback.
Damn right Southwest will never be the same again, but not for the reasons mentioned; they’ll probably end up worse.
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Author: Dennis Miller
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