"Breath Of Fresh Air": Southwest Shares Jump After Report Of Elliott Investment Stake

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by Tyler Durden
Monday, Jun 10, 2024 - 12:45 PM

Southwest Airlines jumped in premarket trading in New York after the Wall Street Journal reported that activist investor Elliot Management had acquired a $2 billion stake in the budget airliner and planned to speak with management about ushering in a new era of change. 

The activist hedge fund led by Paul Singer is now one of the airline's largest shareholders after acquiring a $2 billion equity position, according to WSJ, citing people familiar with the matter. 

News that the activist investor was planning to make major changes, though the report wasn't specific about those changes, sent shares up 8% in premarket trading. 

Southwest is currently plagued by two huge problems. First, its profit margins are deteriorating and lagging behind its competitors. Second, the low-cost airline is constrained by delays in Boeing jet deliveries. It's likely that Elliot, known for taking on tech companies, will force management to implement changes to reverse lackluster earnings and profit margins. 

"Southwest said it was ditching some airports in a rare move for the airline that backtracked on part of its network-expansion plans from a few years earlier," WSJ said. Elliott could probably force management to reduce its footprint at US airports to reduce costs. 

In a note to clients, Barclays analysts said Elliot could bring a "breath of fresh air for the storied, once low-cost airline," which faces structural margin headwinds as the US industry evolves past the company's "dated strategy."

Southwest shares are widely underperforming in the S&P500 airline index on a year-to-date basis (as of Friday's close). This is because the airline withdrew its 2024 fiscal outlook in February due to a delay in Boeing jet deliveries.

On the other hand, JetBlue Airways has attracted the attention of billionaire activist investor Carl Icahn. His disclosure of a significant stake earlier this year has led to him securing two seats on the airline's board.