Why a hedge fund made a podcast about a shake-up it's pushing for at Southwest Airlines

• Elliott Investment Management launched a podcast to influence Southwest Airlines shareholders.
• The activist investor holds 11% of Southwest and is seeking a top-level shake-up.
• Podcasts offer cheaper, controlled communication that have the potential to reach retail investors.

Last week, activist firm Elliott Investment Management launched a podcast as part of its efforts to influence Southwest Airlines shareholders.

Elliott, which built an 11% stake in the US airline, has called for a new CEO and board members. The firm also told Southwest to review its operations and develop a plan to improve performance.

Southwest's stock has shed nearly half its value in the last five years, and its passenger volumes are below pre-pandemic levels despite strong travel demand. On an earnings call in July, company executives said revenues were hurt because Southwest did not optimize summer demand and faced overstaffing because of Boeing's plane delivery delays.

Southwest's CEO, Bob Jordan, has been with the company for three decades and was appointed as chief in 2022. Elliott said Jordan and chairman Gary Kelly are responsible for the company's underperformance.

The activist hedge fund started its public campaign against Southwest's leadership in June and called for a December 10 shareholder vote to decide on Elliott's eight board nominees.

Southwest's 15-member board consists of 13 independent members, according to a filing. Last month, the company said it intends to appoint four new independent directors, potentially including some of those proposed by Elliott.

Elliott said its "Stronger Southwest" podcast will have one-on-one conversations with the firm's nominated directors. The first episode — an interview with former WestJet CEO Gregg Saretsky — was released last week on platforms including Apple Podcasts and Spotify. The video version has 3,900 views on YouTube.

Well before the first episode dropped, the airline started making changes — and more are likely on the way. Last month, Southwest introduced a dramatic turnaround plan, scrapping its unique playbook of more than 50 years, which included open seating, in favor of becoming an airline that resembles most of its peers.

The airline and Elliott are now working on a settlement that would give the hedge fund representation without controlling Southwest's board, Bloomberg reported on Monday.

While it is unclear if new episodes of the podcast will still be released amid settlement talks, communication strategists told Business Insider that Elliott's novel move has benefits, including cost-effectiveness.

Cheaper and more direct

Traditionally, activist investors have communicated directly with investors, because most companies have 10 to 20 major shareholders who decide their elections, said Scott Bisang, a founding partner of financial communications firm Collected Strategies.

But companies like Southwest and Disney, which saw similar activist interest last year, have a lot of individual investors.

"You can't call every retail shareholder, and sending direct mail to every holder multiple times is expensive," Bisang said.

A podcast allows the activist to completely control the content, compared to a media outlet shaping an interview. Shareholders may subscribe to the podcast and get notifications directly, which could create a recurring benefit if they watch more than one episode. If lots of people subscribe, the activist could collect data and retarget ads to investors through other channels, Bisang said.

Before the podcast, Elliott rolled out a website and accounts on Instagram, X, and YouTube.

Cas Sydorowitz, the global CEO of shareholder engagement service Georgeson, said an activist's podcast could go beyond investors, since employees, customers, and suppliers might also listen.

"Investors understand the need to communicate with shareholders and other stakeholders to garner support for their director candidates," Sydorowitz said. "Hosting a podcast is a new and potentially effective way for an activist to showcase the qualifications of their director candidates."

Podcasts are the new activist battleground

Earlier this year, Disney was caught in a proxy war against activist investor Nelson Peltz.

At Disney's annual meeting in April, shareholders voted to keep CEO Bob Iger and Disney management's board and rejected the activist's two candidates.

"While Disney didn't do its own podcast series last year, they actually advertised heavily on entertainment podcasts like 'The Town,'" a podcast about Hollywood, Bisang said.

If the Southwest battle continues, he said to expect direct paid ad campaigns from both sides.

"It's no different than what we see with a presidential election, except in a proxy fight, you can target advertising much more specifically on your investor base versus every voter in a state," Bisang said.

Southwest and Elliott did not respond to requests for comment.