NEW YORK, Aug 26 (Reuters) - Elliott Investment

Management, which now holds voting power over roughly 9.7% of

Southwest Airlines ( LUV ), is telling investors the company

needs new outside leadership for a "better future," but it is

also ready to press ahead with a planned proxy fight.

In a letter to shareholders, the hedge fund is dialing up

the pressure on the airline by proposing a new board-level

committee that would conduct a thorough business review and

"drive transformational change."

The hedge fund said it is eager to meet with company

representatives on Sept. 9 to discuss ways to tackle the

carrier's "immense" challenges. But Elliott also warned that if

leaders cannot identify "what is best for Southwest ( LUV )" and its

stakeholders, it will push ahead with a board challenge.

An investor would need to own 10% of Southwest's ( LUV ) stock to

call a special shareholder meeting and Elliott is very close to

that point now, having increased its stake from 8% previously.

The company said on Monday that it is prepared to meet with

Elliott on Sept. 9 and that it has gathered feedback in the last

several months and met with many shareholders directly.

"We welcome the opportunity to discuss ideas that would

drive sustained Shareholder value as we work to reach a

collaborative resolution," Southwest ( LUV ) said in a statement.

TURNAROUND PLAN

Elliott has been pushing to refresh the board and oust top

executives to help improve the carrier's performance. In June

CEO Bob Jordan said Southwest ( LUV ) has a "great plan" which

management will execute," and that he had no plans to resign.

The airline has been trying to implement a turnaround plan,

including adding seats with more leg room, moving to assigned

seats and naming a new board member in July. Its stock price,

which has been under pressure, pared losses recently.

Southwest's ( LUV ) stock traded largely flat at $28.12 at midday on

Monday.

Earlier this month, Elliott laid out plans to nominate 10

director candidates to Southwest's ( LUV ) 15-person board, including

former Virgin America CEO David Cush and Robert Milton, the

former CEO of Air Canada.

In the letter, Elliott said why it wants so many board

seats. The hedge fund does not want to be "in charge" but said

the board is "purpose-built to serve the interests" of CEO

Robert Jordan and his predecessor and current executive chairman

Gary Kelly. Elliott has pushed for Jordan and Kelly to be

replaced since its stake in the airline became public in June.

As a public company, Elliott wrote, Southwest ( LUV ) must be

accountable to shareholders and is not "an absolute monarchy."

Some investors share Elliott's frustration, the letter said,

noting that Artisan Partners publicly called for leadership

change and urged the board to work with Elliott. Other

shareholders expressed concerns privately to the hedge fund, it

wrote.

The hedge fund also pointed to concerns among Southwest ( LUV )

pilots who have called for bold leadership to fix corporate

problems.

The airline must find a comprehensive solution, "not just

some hand-picked new directors beholden to current management

and a few long-overdue initiatives," the letter said.

While CEO Jordan recently wrote that the fight with Elliott

is "a battle for the heart of our company," the hedge fund said

it is a fight for Jordan and Kelly to "continue to control

Southwest ( LUV ), on their terms, for as long as they wish."

Elliott has said it is preparing to call a special

shareholder meeting where investors would have a chance to vote

on directors.