Elliott Investment Management's request for a Southwest shareholders proxy vote on Dec. 10 is designed to "maximize disruption," the airline said Monday.
The activist investment firm, which owns 11% of Southwest shares, filed a preliminary call for a special meeting on Tuesday morning with the Securities and Exchange Commission. Elliott's planned proxy will ask Southwest investors to approve its slate of eight new board members and to remove eight current board members, including chairman Gary Kelly, who already said he will step down in May.
"Elliott's special meeting request is unnecessary and inappropriate considering the extreme nature of Elliott's demands," Southwest said. "The timing of Elliott's request to apparently pursue board control appears designed to maximize disruption of Southwest's execution of its important business transformation underway as we approach one of the busiest travel periods of the year. Elliott's actions highlight its lack of understanding of Southwest's business and its insatiable need to put its own interests ahead of those of all shareholders."
Southwest said its board will review Elliott's request in accordance with its fiduciary and legal obligations, and that it intends to discuss the process for setting a special meeting with Elliott in a constructive manner.
Approval of the proxy would give Elliott effective control of the board and almost certainly lead to the departure of Southwest CEO Bob Jordan, whose dismissal is one of Elliott's key demands.
Elliott's board slate includes former Air Canada CEO Robert Milton, former Virgin America CEO David Cush, former Marriott International group president for the Americas Dave Grissen and former WestJet CEO Gregg Saretsky.
Elliott's preliminary proxy statement details an Oct. 9 phone call in which Milton told current chairman Kelly that he would be willing to assume the chairman position on a transitional basis until a permanent chair is identified.
In targeting Southwest, Elliott has noted the carrier's strong brand, fleet, network and cash position, all of which create the potential to drive shareholder value.
But Elliott has also been deeply critical of Southwest management, noting that the carrier's profit margins have nosedived from tops among the Big 4 U.S. airlines in 2018 to sinking below Delta, United and American. Southwest's operating profit for the first half of this year was $6 million on revenue of $13.7 billion.
At its Investor Day on Sept. 26, Southwest detailed plans that its leadership team says will reinvigorate the airline. They estimate the new measures will produce $4 billion in incremental revenue and an operating margin of 10% by 2027.
Key initiatives include the introduction of extra-legroom seats and moving to assigned seating in the first half of 2026. Southwest also plans to enter into airline partnerships, starting with Icelandair next year.
In addition, the airline will take a variety of measures to improve its cost metrics, including increased fleet utilization through the launch of red-eye flights next February and a series of steps geared toward reducing aircraft turn times.