Elliott Investment Management’s campaign at Southwest Airlines is emerging as one of the more successful activist investments in the airline industry, with the carrier significantly outperforming both rival activist-backed JetBlue and the broader US equity market since the hedge fund disclosed its stake, according to a report by Bloomberg.
Southwest shares have risen about 51% since Elliott revealed an 11% holding in June 2024, comfortably ahead of the S&P 500’s roughly 40% gain over the same period. The performance contrasts sharply with JetBlue Airways, where Carl Icahn’s activist investment has produced only modest gains despite securing board representation and management changes.
For hedge fund investors, the diverging outcomes underscore both the opportunities and risks associated with activist investing in one of the market’s most difficult sectors. Airlines have historically delivered mixed returns for activists, with operational complexity, cyclical demand and high capital requirements often limiting the impact of governance changes.
Elliott initially pushed for sweeping leadership changes at Southwest, including replacing both executive chairman Gary Kelly and chief executive Bob Jordan. Following negotiations, the airline agreed to appoint new directors and replace Kelly, while Jordan remained in charge to oversee a broad strategic overhaul.
That compromise now appears to have worked in Elliott’s favour.
Under Jordan’s leadership, Southwest has implemented a series of significant operational and commercial initiatives, including introducing premium seating options, charging for checked baggage, restructuring its loyalty programme, upgrading its co-branded credit card offering and rolling out Starlink high-speed in-flight internet. The carrier has also completed its first workforce reduction, cutting approximately 15% of its corporate staff.
The changes have helped strengthen revenues and improve second-quarter profit margins despite a substantial increase in fuel costs, suggesting investors are responding positively to Southwest’s shift away from several long-standing business practices that had previously differentiated the airline.
By contrast, JetBlue’s turnaround has progressed more slowly. Since Icahn disclosed a 9.9% stake in early 2024, the airline has appointed a new chief executive and added two Icahn-backed directors, but profitability remains elusive. Analysts do not expect the carrier to return to annual profits until 2028 following the collapse of its proposed acquisition of Spirit Airlines and the termination of its Northeast Alliance with American Airlines.
The contrasting outcomes also reflect broader trends in shareholder activism. Research cited by Bloomberg found that a majority of companies reaching settlements with activist investors ultimately underperform the S&P 500 over a three-year period, highlighting how sustained value creation remains difficult even after governance changes are secured.
For activist hedge funds, Southwest demonstrates that success often depends on operational execution as much as boardroom influence. Rather than securing every governance demand, Elliott benefited from retaining an experienced chief executive who was ultimately willing to implement many of the reforms the fund had advocated.
While Southwest is unlikely to abandon its core low-cost operating model, investors expect the airline to continue enhancing premium offerings and customer services while leveraging its strong positions at key domestic airports.
