Southwest Airlines will reduce service to and from the world’s busiest airport — another sign that one of the country’s largest carriers is in the midst of steep cost-cutting efforts in the face of pressure from an activist investor.
The Dallas-based airline is slashing arrivals and departures to and from Atlanta’s Hartsfield-Jackson International Airport while cutting 300 pilot and flight attendant positions that service the area, according to a company memo obtained by CNBC.
The cuts came just a day before the company is scheduled to stage its investor day.
Southwest management has come under pressure from activist investor Elliott Investment Management to pare down costs amid a dip in revenue.
Elliott, the hedge fund headed by billionaire Paul Singer which has amassed a stake of more than 10% of the company, escalated its boardroom battle with Southwest on Tuesday, saying it planned to request a special shareholder meeting as soon as next week to overhaul the airline’s leadership.
The company told staffers that the pilots and flight attendants won’t be laid off. Instead, they will likely have to bid to work from other cities.
A separate memo circulated by the company’s pilots’ union indicated that Southwest plans to reduce the number of gates at Hartsfield-Jackson from 18 to 11.
“Although we try everything we can before making difficult decisions like this one, we simply cannot afford continued losses and must make this change to help restore our profitability,” Southwest said in its memo.
“This decision in no way reflects our Employees’ performance, and we’re proud of the Hospitality and the efforts they have made and will continue to make with our Customers in ATL.”
Last week, Southwest warned employees it will have to make “difficult decisions” in the near future to boost profits.
Southwest has so far resisted demands from Elliott to make changes to its management. The carrier said that its current chief executive, Bob Jordan, was the “right leader” to lead the airline back to profitability and to boost the stock price.
The hedge fund has launched a campaign to oust Jordan and other top executives, blaming them for the company’s underperformance.
It wants Southwest to change the way it runs its business and has laid out plans to replace two-thirds of the board’s 15 directors.
Jordan is expected to speak at investor day on Thursday during which he plans to outline steps to turn the company around.
In response to Elliott’s demand for a special shareholder meeting, Southwest said its board would review the request, but accused the hedge fund of trying to disrupt its investor day.
Southwest has been beset by several issues including delays in the deliveries of Boeing aircraft as well as industry-wide overcapacity.
Its operating margin declined to 0.2% in the first half of this year from more than 13% in 2019.
In comparison, Delta Air Lines posted an operating margin of 9.5% in the first six months, with United Airlines at 7.4%.
In a letter to shareholders on Tuesday, Elliott accused the airline of obstructing a leadership change.
“We do not support the company’s current course, which is being charted in a haphazard manner by a group of executives in full self-preservation mode,” it said.
“The urgency of management and board change at Southwest could not be clearer.”
On Tuesday, Southwest said while its shareholders want it to seek a compromise with Elliott, “acquiescing to a single shareholder’s demand for absolute control of the company is not a compromise.”
Southwest’s last annual shareholder meeting was in May. The next meeting is not scheduled until next spring.
With Post Wires
