CHICAGO, Aug 19 (Reuters) - Southwest Airlines ( LUV )

is girding itself for a fight with Elliott Investment

Management, rallying support from investors and employees to

face down an activist investor looking for wholesale changes to

company leadership.

In recent weeks, CEO Bob Jordan has been meeting and

gathering feedback from investors to stave off Elliott's

advances - casting the investment firm's approach as predatory.

For its part, the hedge fund has cited the underperformance of

Southwest's ( LUV ) stock and the Dallas-based airline's "rigid

commitment to a decades-old approach" as reasons to revamp the

board and executive suite.

"Don't be fooled - this is a battle for the heart of our

company and our future - your future," Jordan wrote on Wednesday

in a staff memo, seen by Reuters.

Southwest ( LUV ) has built a reputation through its 53-year-history

as a low-cost darling of many American travelers, inspiring case

studies at business schools. Similarly, Elliott is known as a

formidable negotiator, capable of extracting concessions and

pushing out CEOs at companies such as Starbucks ( SBUX ) after

amassing a heavy stake.

Elliott has made no secret of its goals. It wants to oust

both Jordan and Southwest's ( LUV ) board chair Gary Kelly, blaming them

for the airline's financial results, to replace two-thirds of

the board's 15 directors and to change the way the company has

been running its business in order to make it compete better in

the modern airline industry.

The hedge fund does not have a track record in the airline

industry. Some analysts worry that extensive changes could

damage the airline's brand that has helped Southwest ( LUV ) stand out

from rivals and cultivate a loyal fan base.

However, Southwest ( LUV ) has been struggling to find its footing

after the pandemic. It has been hit hard by its over-reliance on

Boeing ( BA ) for its fleet due to regulatory and safety

struggles that have reduced the jetmaker's ability to deliver

new planes.

Southwest's ( LUV ) operating costs have increased by 23% since the

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

operating margin declined to 0.2% in the first half of this year

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

United posted operating margins of 9.5% and 7.4%,

respectively in the first six months.

Southwest ( LUV ) has said it will consider Elliott's suggestions

for improving the business, including board changes, but it is

not ready to swap out its leadership.

Sources at the airline said Elliott will not engage in

meaningful discussion without the removal of Jordan and Kelly.

Elliott declined to comment.

'IT'S A FIGHT'

In his message, Jordan said Southwest ( LUV ) would not back down

from a battle.

"If it's a fight they want, it's a fight they will get," he

wrote.

Jordan told staff he met investors on both the East Coast

and West Coast over the past two weeks. He also held meetings

with some union officials, company sources said.

Southwest ( LUV ) needs support among unions and investors in case

Elliott manages to call a special shareholder meeting to push

out its leadership, according to experts who help companies deal

with activist investors.

Oscar Munoz, a former CEO of United who had to deal with a

proxy battle, said he doubts Elliott will be able to get

shareholder support to install 10 nominees on the board.

"With regards to the activists, they do have some good

points," Munoz told Reuters. "How do you begin to counteract

those points?"

Munoz said Southwest ( LUV ) will have to make some concessions in

terms of board seats, although he believes Jordan should be

"left to do his work."

Southwest ( LUV ) plans to end longstanding practices of open

seating. The company will offer assigned and extra-legroom seats

to attract premium travelers, and start overnight flights -

steps that analysts have said would boost earnings next year. It

is due to share more details next month.

Elliott has called the measures "too little, too late."

Two Southwest ( LUV ) investors, speaking on condition of anonymity,

said that while Southwest ( LUV ) needs to do more to grow its revenue

and control costs, Elliott also must share details of its plan

for the airline.

Elliott has said the new board and independent advisers will

carry out a comprehensive business review to modernize Southwest ( LUV )

and restore best-in-class profitability. It expects the changes

to help drive up Southwest's ( LUV ) stock price to $49 within 12

months, up about 86% from current levels.

Lisa Silverman, senior managing director at global risk

consulting firm K2 Integrity, said calling a shareholder meeting

could be a risky proposition for Elliott, as index-fund

investors tend to vote with management.

Jordan told company employees that the prospect of a special

shareholder meeting at this point is a "hypothetical and

speculation."

"Elliott is running a predictable playbook intended to ...

make you feel that they are in charge," Jordan said. "They are

not."