Southwest cancels service to and from Atlanta due to cost reasons

Southwest Airlines will cut service to and from the world’s busiest airport – another sign that one of the nation’s largest airlines is in the midst of a drastic cost-cutting effort amid pressure from an activist investor.

The Dallas-based airline is drastically reducing the number of arrivals and departures to and from Atlanta’s Hartsfield–Jackson International Airport and cutting 300 jobs for pilots and flight attendants serving the area, according to a company memorandum obtained by CNBC.

The cuts came just one day before the company’s scheduled investor day.

Southwest’s management has come under pressure from activist investor Elliott Investment Management to cut costs in the face of declining revenues.

Elliott, the hedge fund owned by billionaire Paul Singer that has amassed a more than 10 percent stake in the company, escalated its power struggle with Southwest on the board on Tuesday and announced that it would request a special shareholders meeting as early as next week to reform the airline’s management.

The company told employees that there would be no layoffs of pilots and flight attendants. Instead, they would likely have to apply for job opportunities in other cities.

A separate memo from the company’s pilots union says Southwest plans to reduce the number of gates at Hartsfield-Jackson Airport from 18 to 11.

“While we try everything we can before making difficult decisions like this, we simply cannot afford continued losses and must make this change to restore our profitability,” Southwest said in its memo.

“This decision in no way reflects the performance of our employees and we are proud of the hospitality and efforts they have made and will continue to make for our customers in ATL.”

Last week, Southwest warned employees that the company would have to make “difficult decisions” in the near future to increase its profits.

Southwest has so far resisted Elliott’s calls for management changes. The airline said its current CEO, Bob Jordan, is the “right leader” to return the airline to profitability and boost its stock price.

The hedge fund has launched a campaign to remove Jordan and other top executives from the company, blaming them for the company’s poor performance.

The company wants Southwest to change its business policies and has put forward plans to replace two-thirds of its 15 board members.

Jordan is expected to speak at investor day on Thursday to outline steps to restructure the company.

In response to Elliott’s call for a special shareholders meeting, Southwest said its board would consider the request, but accused the hedge fund of trying to disrupt the investor day.

Southwest is facing several problems, including delays in the delivery of Boeing aircraft and industry-wide overcapacity.

The operating margin fell from over 13% in 2019 to 0.2% in the first half of this year.

In comparison, Delta Air Lines reported an operating margin of 9.5% in the first six months, while United Airlines reported an operating margin of 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. It is being taken by a group of executives in a haphazard and purely self-preservation mode,” it said.

“The urgency for change in management and the board of directors at Southwest couldn’t be clearer.”

On Tuesday, Southwest said that while shareholders would seek a compromise with Elliott, “giving in to a single shareholder’s demand for absolute control of the company is not a compromise.”

Southwest’s last annual shareholder meeting was held in May. The next meeting is not scheduled until next spring.

With post wires