Southwest Airlines pitched a new vision at the company’s investor day on Thursday morning as part of a bid to placate the activist hedge fund Elliott Management, which has been demanding change at the troubled airline. The new pitch, which presented plans for a three-year overhaul, appeared to pay off. Shareholders liked what they heard and sent the stock soaring 10%.
The airline has already announced it will replace its famous open-seating policy and charge for premium seating, which has become a major source of revenue for its rivals, while also reiterating that it aims to offer red-eye flights starting in February. Southwest will remain the only U.S. carrier, however, not to charge for two checked bags.
On Thursday, the company added it would expand its network through international partnerships, with Icelandair helping launch a connection out of Baltimore next year. The Dallas-based airline will also begin offering vacation packages in 2025, and it touted plans to turn planes around faster, reduce aircraft capital expenditures by $500 million, and find another half-billion dollars in run rate of cost savings.
Overall, the company said the new measures would generate about $4 billion in incremental earnings before interest and taxes (Ebit) by 2027.
“We’re now ushering in a new era at Southwest, moving swiftly and deliberately to transform the company,” Southwest CEO Bob Jordan said in a statement.
Southwest tries to fend off activist pressure
The changes come two days after Elliott threatened to call a special meeting as it tries to push Jordan out. The activist investor announced in June that it had built an 11% stake in the airline, above the 10% threshold needed to make such a request, worth almost $2 billion.
Southwest’s board authorized $2.5 billion in share buybacks Thursday morning as it tries to fend off Elliott’s pressure. The airline also announced former Spirit Airlines CEO Bob Fornaro would join the board, a move that appeared to be a nod to Elliott’s aspirations to mold Southwest into an ultra-low-cost carrier like Spirit or Frontier.
Before jumping above the $31 mark on Thursday, the stock closed the previous day down over 50% from its post-pandemic high in April 2021. Shares had also fallen 10% from where they sat a decade ago, while the S&P 500 has nearly tripled in that span.
Earlier this month, chairman Gary Kelly told shareholders he would retire next year as part of a massive refresh of the company’s board, with six directors agreeing to voluntarily step down in November. The announcement came a day after Kelly, who served as CEO from 2004 to 2022, and two other board members met with the hedge fund.
Four new board members will be appointed in the near term, Kelly said at the time, three of which could be candidates put forward by Elliott.