Activist investor Elliott’s intervention: A turning point for Southwest Airlines? (09/04/2024)

Hello, everyone! This week, let's turn our attention to $Southwest Airlines (LUV.US)$ , a well-known U.S. airline currently contending with a so-called corporate raider. In this article, we'll explore the latest trends and examine the company's recent market activity.

What's new?

On September 3, 2024, Elliott Investment Management, a leading activist investor managing $70 billion in assets, disclosed in a regulatory filing that it now owns over 10% of Southwest Airlines' common stock. This substantial stake allows Elliott to call a special shareholder meeting at the Dallas-based airline, indicating its intent to drive major changes.

This announcement comes just days before a scheduled meeting on September 9 between Elliott and Southwest to discuss solutions to issues that have caused the airline's stock to plummet by about 50% over the past three years.

Since acquiring a minority stake in June, Elliott has been advocating for significant changes at Southwest. The hedge fund is calling for the removal of CEO Robert Jordan and Executive Chairman Gary Kelly, and plans to nominate 10 new directors to the airline's 15-member board.

Jordan, who has been Southwest's chief executive since 2022, has affirmed his decision not to step down and has signaled to the staff that he and other executives are prepared to confront Elliott.

Elliott, on the other hand, has conveyed to other shareholders its readiness to take further steps, including convening a special shareholder meeting, unless the company is willing to discuss changes to its leadership.

Convening a special shareholder meeting, typically reserved for urgent matters that cannot wait until the next annual gathering, is an uncommon move. If Elliott were to initiate such a meeting, it would signify a significant escalation in its ongoing dispute with the airline since publicly disclosing its stake in June.

Previously, Elliott has advocated for the removal of top executives, such as $NRG Energy (NRG.US)$ CEO Mauricio Gutierrez, who initially resisted but eventually resigned late last year. Notably, NRG's stock price has surged by approximately 160% since Elliott's stake was revealed in May 2023.

Chart of the day

Trend analysis:

Southwest Airlines' shares (LUV) have been following a consistent downward trend since April 2021, adhering to a descending channel pattern and declining by more than 50%, as depicted on the weekly chart above.

On the daily chart, despite experiencing a decline in recent months, the price has rebounded by over 20%, indicating a bullish market trend from a technical standpoint. Nevertheless, it appears to have encountered resistance near the notable psychological barrier of $30.

Technical indicators:

● The 20- and 50-day moving averages (MAs) of LUV have exhibited relatively flat movement in recent months, suggesting a phase of price consolidation. However, LUV is currently trading above these MAs, with a potential bullish crossover on the horizon, reinforcing a positive market sentiment.

● The trading volume in recent days has slightly contracted, suggesting a decrease in buying interest in the market.

● The relative strength index (RSI) is reaching a six-month high, aligning well with the price action. However, this also suggests a possible overbought situation in the near term.

● Three consecutive Doji candlesticks have appeared, where the opening and closing prices are nearly identical, with the most recent one being a shooting star. This pattern may indicate a sense of market indecision.

Next move?

LUV has been in a bullish trend, with the price bouncing back more than 20% from the year-to-date low of $23.4. In the short term, traders may keep a close eye on the key resistance level of $30, as well as the potential impact of Elliott’s actions on the company.

This presentation discusses technical analysis, other approaches, including fundamental analysis, may offer very different views. The examples provided are for illustrative purposes only and are not intended to be reflective of the results you can expect to achieve.

All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.