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Elliott seeks to replace two-thirds of Southwest's ( LUV ) board

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Southwest ( LUV ) plans leadership changes to avoid proxy fight

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Southwest's ( LUV ) operating costs up 23%, shares down 43% in

three

years

By Rajesh Kumar Singh

Sept 24 (Reuters) - Activist investor Elliott Investment

Management on Tuesday escalated its boardroom battle with

Southwest Airlines ( LUV ), saying it plans to call a special

shareholder meeting as soon as next week to overhaul the

airline's leadership.

The hedge fund has launched a campaign to oust CEO Bob

Jordan and other top executives, blaming them for the company's

underperformance. It wants the U.S. carrier to change the way it

runs its business and has laid out plans to replace two-thirds

of the board's 15 directors.

Southwest ( LUV ) said in a statement that if Elliott submits a

request for a special meeting, the board will "fulfill its

duties to carefully review the request in good faith."

In a bid to prevent a proxy fight, Southwest ( LUV ) this month said

six directors would step down in November and Executive Chairman

Gary Kelly would retire next year. The company would appoint

four new independent directors in the near future and would

potentially include up to three candidates proposed by Elliott,

it added.

But Southwest ( LUV ) reiterated its support for Jordan, saying

there was "no better leader" to successfully execute its

strategy to "evolve the airline and enhance sustainable

shareholder value."

In a letter to shareholders on Tuesday, Elliott accused the

airline of obstructing a leadership change.

"We do not support the company's current course, which is

being charted in a haphazard manner by a group of executives in

full self-preservation mode," it said.

"The urgency of management and board change at Southwest ( LUV )

could not be clearer."

Elliott asked Southwest ( LUV ) shareholders to call back all of

their shares prior to Oct. 7.

The hedge fund now owns enough Southwest ( LUV ) stock to call a special

meeting and take the next steps to shake up the board and

management.

Southwest ( LUV ) has struggled to find its footing after the pandemic,

in part due to Boeing's ( BA ) aircraft delivery delays and

industry-wide overcapacity in the domestic market.

Its operating costs have increased by 23% since the

pandemic, but unit revenues have increased by just 6%.

The operating margin declined to 0.2% in the first half of

this year from more than 13% in 2019. In comparison, Delta

posted an operating margin of 9.5% in the first six

months, with United's at 7.4%.

Southwest's ( LUV ) shares, which were up 0.5% at $29.78 in

afternoon trade, have lost about 43% in the past three years,

compared with a 9% gain in Delta's shares.

To turn around its fortunes, Southwest ( LUV ) plans to offer

assigned and extra-legroom seats to attract premium travelers,

and start overnight flights. The company also intends to carry

out network changes.

Southwest ( LUV ) is due to share more details on Thursday at its

investor day.