Change is Coming for Southwest Airlines!

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Are Southwest Airlines in trouble? They are under attack from an activist investor! But… what are Activist Investors? Can somebody just buy a… “chunk” of an airline, get rid of its leadership and COMPLETELY change the way it works? Is THAT going to be the fate of Southwest Airlines, and… do they deserve it?
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Elliot Investment Management presentation:

[pchris]

This hits me hard because I’ve been a loyal SWA frequent flier for decades (and stockholder). For a very simple reason. Southwest had (by a country mile) the best people working for them. They also looked at how we fly and all the things that were annoying and inefficient (like assigned seating) and scrapped it so they could offer cheap fares. A plane ticket to Las Vegas for $69 was unheard of until they came along! And for that kind of money, who gives a darn if you sit in the front or the back of the plane? They simply “got it”

These guys at Elliot definitely don’t get it and like you said, they are nothing more than a big shot Wall Street “pump and dump” outfit and they will leave LUV in ruins.

The simple truth is, the real bad guy is Boeing. One big part of SWA keys to success were they put all their eggs in the Boeing 737 basket. This saved them money in pilot/crew/maintenance training, certification and equipment compared to other airlines that had to juggle multiple plane types and makes. Boeing’s greed and sloppy MAX design program has sunk both companies. Elliot is just finding tricky (sneaky) ways to profit from all this.

[jasonnchuleft]

The problem is that most of those activist investors are only interested in short-term performance. Meaning they don't care what happens after they've sold their shares. So sure Southwest might improve its stock evaluation but what happens after that? Removing seats from a plane doesn't magically make it smaller and more fuel efficient. Nor does it reduce maintenance overhead. Not to mention charging more for "premium" seats just moves them closer to the already pretty close competition. Innovation doesn't mean just barely doing everything everyone else does 😶

[rreichar]

No assigned seating and no fees for checked bags are features not bugs IMHO. They’re the primary reason we have flown Southwest for many decades. They are some of the things that differentiates them from other airlines.

[jjd-lxvr]

I've been a longtime Southwest customer but the assigned seating thing is a dealbreaker. I can't count the number of times other airlines have reassigned my seat to a middle seat.

[Elementalism]

Southwest has been the most consistently profitable airline in the country. This guy is going to change them into American, Delta, or United and then wonder why their profits mimic those airlines as not being consistent and require bankruptcy protection every 15-20 years.

[foxracing]

I watch a YouTube account called Bright Sun Films that makes videos on big companies that have gone bankrupt in the past. Easily 90% of the stories all have one thing in common before they went bankrupt: some kind of investment management company did to them what Elliott is doing to Southwest...

[BriGuyIT]

Not sure exactly what the industry would call replacing senior management and 10 board members. I'd definitely call it a "hostile takeover."

[rynovoski]

Petter: you're not thinking like an American capitalist. What you may be missing is that investors like these do not feel that avoiding bankruptcy or restructuring is a good thing, they think it's a missed opportunity to screw over their employee groups, suppliers, etc., in a favorable venue for cutting costs. I am very confident that they would point directly to what these carriers did in the decade after 9/11 and the money they saved by gutting employee groups. They could be making more money be shafting the customer and charging fees and all sorts of other things. How the airline performs financially or in terms of customer satisfaction doesn't matter AT ALL. Shareholder returns are the only thing that matter.

This place is a hellscape, pure and simple.

[BobCollins]

I have loved SWA differences, particularly no assigned seating.
In general, I like how easy they have been to deal with. I like the full credit for late cancelations.

[onedaya_martian]

Yet another great presentation Mentour Team !!

It has to be said that 3 of SWA's "draws" to buying a seat are: low fares, unassigned seating, free luggage. It sets them apart ! The expected added revenue Elliot's "elite" financial folks forecast will very likely be offset by much lower loyalty. I have "premiere" status on SWA, but my company's website is putting me on Delta flights now because of price. When SWA matches Delta's (and other's) offerings for seats and luggage, plus starts paying for a better backoffice computer system for flight management and financing the new planes, the competition between carriers will be a race to the bottom with little upside to share price.

Elliot Investment's quants will make money the same way "McDonald Douglas financiers" did, but with the same type of losses of quality and reputation that Boeing is experiencing. More red-eye's for dividends anyone, right Mentour ?

[AvyScottandFlower]

Reminds me a lot of the original Wall Street movie, where Gordon Gekko takes over a domestic airline
These people are leeches, if you ask me.

[gregswank]

When I first started flying on Southwest I was annoyed by the lack of seat assignment, but once I got used to it, I found it actually works quite well. One of the reasons I loved Southwest, was the lack of baggage fees. As a consumer, I don't like getting dicked around by hidden fees, and like to see the full price up front. Fees make me feel like I'm getting ripped off. Many times I found that once you add the hidden fees on, Southwest became the best value. I have recently tried other budget airlines and felt like I was on an inner city bus. I refuse to ride on any plane that treats us like cattle, or makes the seats uncomfortably small, close, and uncomfortable. Flying on a plane shouldn't be like a pain tolerance marathon.

[XMysticHerox]

"Activist" investors is a weird term. They are mostly just doing it for personal profit. Hardly activism.

[theguywithallthesolutions]

I mean you've got to admit they've got some balls on them I own 10% of the company so I should get to make 90% of the decisions and I'm going to get rid of the top two people and then 10 out of 15 of the other people

[maggieblueskies]

My sister worked for SW and she ended up quitting because of their over booking policy. This ensured each airplane is 100% full, but caused passengers to be angry at boarding. No problem just put boarding agent's front and center to take the heat. Save money by scaling down the amount of flights going to the same destination per day but stockholders won't go for this. Mo money.

[tomedgar]

Southwest used to be my go to for travel, no longer. Customer service and employee attitude has lost my business. Add their reduced legroom and I happily pay more to fly elsewhere. Mistakes happen but there is no excuse for rude.

[bunkie]

I really dislike the expression “invested x in the company” to describe a share purchase when what actually happened was buy out of an investment made some time ago by others. It gives the wrong impression that new funds have been invested.

[JockMurray-vo]

Didn't Carl Ikhan do a number on TWA years ago?

[Retiredtraveler]

Thanks for another great video! I used to be a huge Southwest fan routinely flying between Baltimore, Washington and Fort Myers. One of my frustrations is every flight to and from Baltimore was packed! I rarely if ever remember an empty seat being available. While you mention their planes are too big…… Not between Baltimore and Fort Myers, Florida. The other reason I gave up on Southwest is no assigned seats. I would gladly pay for a premium seat and an assigned seat. The boarding process is a joke, with passengers requiring a special assistance taking up most of the "a" cat category seats. The other thing I think Southwest is missing is overseas travel. While they do have Caribbean & Mexico Flights, flights to Europe would greatly enhance this airlines profitability. I recognize that the 737 does not have the range even out of Boston to mainland Europe, however, investing in the A321 Neo would be a best bet

[msromike]

Maybe Elliott is saying they should have gone bankrupt for increased profitability?