Investing.com -- Shares in Southwest Airlines (NYSE:LUV) surged by more than 6% in premarket U.S. trading on Monday after Elliott Investment Management revealed that it had built up a roughly $1.9 billion stake in the carrier and intends to push for changes to reverse a recent run of underperformance.
The announcement confirmed an earlier report from the Wall Street Journal, which noted that the activist investor is now one of Dallas-based Southwest's largest shareholders.
In a statement justifying the stake purchase, Elliott said Southwest has unveiled "deeply disappointing results" due to "poor execution and leadership's stubborn unwillingness to evolve the Company's strategy."
Southwest’s shares are trading down nearly 4% so far in 2024 and are hovering below where they were in March 2020, when the COVID-19 pandemic sparked travel restrictions that weighed heavily on the wider airline industry.
Along with the impact of COVID, Southwest, which once posted 47 consecutive years of profits, has been hit by higher costs stemming from new labor contracts and delays to deliveries from embattled planemaker Boeing (NYSE:BA).
Elliott proposed a three-pronged plan to revive Southwest's returns that involves "enhanc[ing]" its board of directors, "upgrad[ing]" its leadership team, and "undertak[ing] a comprehensive business review."
"[T]he Company can return to its rightful position as an industry leader, including generating best-in-class margins and compelling returns for its shareholders," Elliott said, adding that under its strategy revamp, Southwest can achieve a stock price of $49 within 12 months -- an uptick of just under 77% versus its level of $27.75 prior to the start of trading on Monday.
Analysts at Barclays argued in a note to clients that Elliott's engagement "could bring a breath of fresh air" to Southwest's "dated strategy."
Ambar Warrick contributed to this report.