Elliott takes a big stake in Southwest Airlines: here’s what it wants

Southwest Airlines (NYSE: LUV) stock price is gaining this morning following a report that Elliott Investment Management has built a sizable stake in the underperforming air carrier. 

Elliott bought $2.0 billion of Southwest Airlines stock

The activist investor now owns nearly $2.0 billion worth of Southwest Airlines shares, as per people that talked to the Wall Street Journal today on condition of anonymity. 

Elliott Management will push for changes at $LUV aimed at reversing the underperformance that has plagued it in recent years, they added. 

Neither Southwest Airlines Co nor Elliott Investment Management have so far commented on the WSJ report on Monday. 

In April, the airline said Boeing Co will not be able to deliver any more than 20 aircraft to it this year. Consequently, higher costs will weigh on revenue growth in 2024, the management warned. 

Southwest Airlines stock price is currently down roughly 15% versus its year-to-date high in early March.. LUV shares do, however, pay a dividend yield of 2.59% at writing. 

$LUV disappointed in its fiscal first quarter

Elliott Investment Management is now one of the largest shareholders of Southwest Airlines Co. Other notable institutional investors with stakes in $LUV include Blackrock and Vanguard Group. 

In April, the Dallas-headquartered airline reported its financial results for the first quarter that missed Street estimates. 

Bob Jordan, the chief executive of Southwest Airlines, acknowledged the underperformance at the time and announced remedial changes which included ending operations at four airports. 

Additionally, we’re evaluating options to enhance our Customer Experience as we study product preferences and expectations, including onboard setting and our cabin. And, we’re implementing cost control initiatives, including limiting hiring and offering voluntary time off.

Details of what else the air carrier plans on doing to fix its ongoing problems will be shared at the Investor Day in September, he added. 

Is Southwest Airlines stock worth owning in June?

Still, John Staszak – an Argus Research analyst downgraded Southwest Airlines stock last month to “hold”. He now expects $LUV to earn $1.20 a share this year – down an alarming 50% versus his previous forecast. In 2025, it will be able to improve per-share earnings to $2.0 only, the analyst added. 

Staszak expects fewer deliveries from Boeing and higher employee costs to stand in the way of swift recovery in Southwest Airlines share price. 

Wall Street at large has a consensus “hold” rating on LUV stock as well.