Elliott Investment Management, an activist investor, has built a nearly $2 billion stake in Southwest Airlines Co (NYSE:LUV), and is set to advocate for changes to enhance the airline's underperforming shares.

What Happened: Elliott Investment Management, a hedge fund led by billionaire Paul Singer, has amassed a stake of almost $2 billion in Southwest Airlines, reported The Wall Street Journal, citing people familiar with the matter. The firm intends to engage with Southwest's management to address the airline's underperformance.

Southwest's share price has plummeted by over 50% in the last three years, closing at $27.75 on Friday, lower than its March 2020 value. This decline contrasts with a roughly 8% increase for Delta Air Lines and an approximately 8% decrease for United Airlines Holdings, over the same period.

The firm is renowned for targeting tech companies and others, pushing for significant changes like management shake-ups and outright sales. Companies where Elliott has recently built positions have often ended up replacing their CEOs, such as the wireless tower owner Crown Castle, NRG Energy, and Goodyear Tire & Rubber.

Southwest Airlines is at a critical juncture. Initially a scrappy Texas upstart in the 1970s, it grew into the largest domestic airline by passengers by undercutting competitors' fares and stimulating demand for air travel. The Dallas-based carrier kept costs low by flying only Boeing 737 planes, earning a reputation for exceptional service.

However, the formula that generated 47 consecutive years of profits before the COVID-19 pandemic is showing signs of strain. The airline's consumer-friendly reputation has also suffered, especially after the 2022 holiday meltdown caused by technology systems failing to manage a large-scale disruption.

Southwest Airlines and Elliott Investment Management did not immediately respond to Benzinga's request for comment.

Why It Matters: The airline industry has been facing numerous challenges, including the impact of the COVID-19 pandemic, slow refund processes, and intense competition. Southwest's financial struggles have been further exacerbated by Boeing's delivery delays and technology system failures.

With Elliott's significant stake and a history of driving change in underperforming companies, Southwest may be on the cusp of a significant transformation.

Recent investments by Elliott include global tech investor SoftBank, chip maker Texas Instruments, and air conditioning and building-security supplier Johnson Controls International.

The busy season for activist investors has largely subsided after many public companies held their annual shareholder meetings earlier in the spring. This year's major battles included Nelson Peltz's proxy fight at Disney, where his firm Trian Partners failed to secure two seats on the media giant's board, and Ancora Holdings' campaign at railroad operator Norfolk Southern, where it successfully obtained three seats.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote