The company's investor day comes at a crucial moment in a proxy fight with Elliott Management
As the management team at Southwest Airlines (LUV) fights to maintain their control amid an activist investor’s campaign to replace them, there’s a large contingent of people whose jobs might be in even more danger. Southwest’s investor day is Thursday, and analysts believe that a big wave of layoffs could be coming no matter who gets to be in charge of the carrier’s turnaround efforts.
“Growth plans for 2025 and beyond will be a major focus area,” write TD Cowen’s Tom Fitzgerald and Helane Becker in a recent research note. “We believe investors are looking for Southwest to continue cutting capacity and not grow close to GDP. We are also watching for more details on headcount reduction plans for 2025 with this year expected to see headcount down ~2k.”
According to the company’s most recent quarterly report, Southwest employs about 74,000 people. A cut of the magnitude TD Cowen anticipates would be equivalent to about 3% of the workforce getting axed.
For months, Southwest has been dealing with an incursion by the hedge fund Elliott Management. The firm wants to clean house at the board of directors, seize control of the C-suite, and launch a “comprehensive business review” to figure out how to stem a recent run of bad business. In a sign of how much pressure is on Southwest, the chairman of the company’s board announced earlier this month that he’ll be leaving his seat next year and taking half a dozen board members out the door with him.
Southwest CEO Bob Jordan, who has already said he’s not going to leave the company willingly, has presided over a number of big changes lately. For example, the company is changing its open-seating and open-boarding policy that was for decades a chaotic signature.
Like fellow budget carrier Spirit Airlines (SAVE), Southwest is trying to leave behind its low-cost carrier tendencies as bigger, more expensive so-called “legacy” carriers like American Airlines and Delta Air Lines cut fares in order to build market share.
Elliott, which has been engaging in a proxy campaign back-and-forth with Southwest management, has been banging the drum that these changes are too little, too late and that investors should give it a chance to shape the company’s future instead. Although a previous TD Cowen analysis of those plans suggests they’re not as drastic as Elliott suggests, the company needs to do something to turn things around.
“Southwest has their work cut out for them,” TD Cowen’s analysts wrote in their investor day preview.
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