Activist Investor Seeks to Make Operational and Boardroom Changes at Southwest Airlines to Improve Financial Footing

Southwest Airlines, under pressure from activist investor, Elliott Investment Management, is planning to make significant operational changes to become more competitive and improve its stock price. While Southwest has always been admired for its unique culture and innovative approach, whether it’s open seating or two bags fly free, will it gain any advantage or, in the end, lose its competitive advantage by conforming to its industry peers and ultimately becoming just another “me too” airline.

While Elliott Investment Management is confident that many of its proposed changes – reserved seating and overnight flights, as examples – will better satisfy Southwest fliers, improve efficiencies, and benefit stock investors, what are the potential ramifications when one of the world’s most innovative and successful airlines adopts a business model more aligned with its legacy peers?

Among some of the potential consequences are:

Internal Drawbacks
The belief that Southwest is no longer allowed to be innovative can create a culture of complacency, where teams stop pushing boundaries or questioning the status quo. As a result, employees become disillusioned, company morale declines, and top talent may even leave when they realize that Southwest isn’t fostering real innovation.

Competitive Impact
Southwest, as an innovator, generally outpaced its competitors by differentiating itself in the marketplace. In contrast, companies that conform rather than truly innovate, tend to become less relevant. They fail to respond to shifting market dynamics and customer needs, and even risk being blindsided by emerging technologies and business models, so that eventually, they become parity and even obsolete.

Customer Response
Consumers today expect and even desire novelty and value in the products and services they buy. If a company like Southwest offers only incremental updates or copies of competitors’ ideas, customers may lose interest and seek more original offerings elsewhere. This can seriously hurt its reputation and the brand can suffer irreparable damage.

While it is understandable and even reasonable why Elliott Investment Management wants change, be careful what you wish for. Given the DNA of Southwest, it still needs to foster a culture of genuine innovation, focus on challenging the status quo, and regularly evaluate whether its actions are truly pushing boundaries or merely conforming to the likes of its competitors.