Southwest Airlines Co. (LUV) recently learned that an activist investor can send a stock price soaring. Activist investor Elliott Investment Management L.P. has disclosed a substantial stake in Southwest Airlines Co.—approximately $1.9 billion—nearly 11% of the company's current market capitalization. This makes the investment firm one of the largest shareholders. In a letter to Southwest Airlines’ board members, Elliott made suggestions, such as upgrading leadership with outside individuals and reviewing business strategies, that could raise the stock price 77% within 12 months to $49 per share. Elliott believes that the company’s rigid adherence to its traditional approach has hindered its ability to compete effectively in today’s airline industry.

Southwest Airlines: A Recent History

The investment firm argues that management's reluctance to modernize has left the airline with antiquated operational processes, outdated software, and a dated monetization strategy. They point to the company’s operational holiday meltdown at the end of 2022 when they had to cancel more than 15,000 flights. Over the past year, LUV stock has seen some volatility, reaching a high of $39.18 in July of 2023, then dipping to $22.23 by the end of October. It hit another high of $34.83 in March of this year, and since then, has been trading between $25.51 and $29.73. In April, the company reported a first-quarter loss of $231 million and was considering changing boarding and seating rules.

Why Traders Should Take Notice

Elliott has big plans for the airline which could shake things up, modernize, and make it more competitive. The proposed three-pronged plan aims to propel the airline into greater growth and earnings while unlocking substantial value for Southwest shareholders. However, how amenable the company would be to these changes remains to be seen. Currently, the consensus recommendation from 19 Wall Street analysts has LUV as a Buy, with an average price target of $28.29. Raymond James’ Savanthi Syth said she wasn't surprised at Elliott’s interest, given Southwest’s strong industry position, and she believes the changes wouldn’t be too hard to achieve.

Neither Julie Stoller nor Stocks.News has positions in Southwest.