CHICAGO >> Southwest Airlines is girding itself for a fight with Elliott Investment Management, rallying support from investors and employees to face down an activist investor looking for wholesale changes to company leadership.

In recent weeks, CEO Bob Jordan has been meeting and gathering feedback from investors to stave off Elliott’s advances — casting the investment firm’s approach as predatory. For its part, the hedge fund has cited the underperformance of Southwest’s stock and the Dallas-based airline’s “rigid commitment to a decades-old approach” as reasons to revamp the board and executive suite.

“Don’t be fooled — this is a battle for the heart of our company and our future — your future,” Jordan wrote on Wednesday in a staff memo, seen by Reuters.

Southwest has built a reputation through its 53-year history as a low-cost darling of many American travelers, inspiring case studies at business schools. Similarly, Elliott is known as a formidable negotiator, capable of extracting concessions and pushing out CEOs at companies such as Starbucks after amassing a heavy stake.

Elliott has made no secret of its goals. It wants to oust both Jordan and Southwest’s board chair Gary Kelly, blaming them for the airline’s financial results, to replace two-thirds of the board’s 15 directors and to change the way the company has been running its business in order to make it compete better in the modern airline industry.

The hedge fund does not have a track record in the airline industry. Some analysts worry that extensive changes could damage the airline’s brand that has helped Southwest stand out from rivals and cultivate a loyal fan base.

However, Southwest has been struggling to find its footing after the pandemic. It has been hit hard by its over-reliance on Boeing for its fleet due to regulatory and safety struggles that have reduced the jet maker’s ability to deliver new planes.

Southwest’s operating costs have increased by 23% since the pandemic, but unit revenues have increased by just 6%. Its operating margin declined to 0.2% in the first half of this year from more than 13% in 2019. In comparison, Delta and United posted operating margins of 9.5% and 7.4%, respectively in the first six months.

Southwest has said it will consider Elliott’s suggestions for improving the business, including board changes, but it is not ready to swap out its leadership.

Sources at the airline said Elliott will not engage in meaningful discussion without the removal of Jordan and Kelly.

Elliott declined to comment.

‘IT’S A FIGHT’

In his message, Jordan said Southwest would not back down from a battle.

“If it’s a fight they want, it’s a fight they will get,” he wrote.

Jordan told staff he met investors on both the East Coast and West Coast over the past two weeks. He also held meetings with some union officials, company sources said.

Southwest needs support among unions and investors in case Elliott manages to call a special shareholder meeting to push out its leadership, according to experts who help companies deal with activist investors.

Oscar Munoz, a former CEO of United who had to deal with a proxy battle, said he doubts Elliott will be able to get shareholder support to install 10 nominees on the board.

“With regards to the activists, they do have some good points,” Munoz told Reuters. “How do you begin to counteract those points?”

Munoz said Southwest will have to make some concessions in terms of board seats, although he believes Jordan should be “left to do his work.”

Southwest plans to end longstanding practices of open seating. The company will offer assigned and extra-legroom seats to attract premium travelers and start overnight flights — steps that analysts have said would boost earnings next year. It is due to share more details next month.

Elliott has called the measures “too little, too late.”

Two Southwest investors, speaking on condition of anonymity, said that while Southwest needs to do more to grow its revenue and control costs, Elliott also must share details of its plan for the airline.

Elliott has said the new board and independent advisers will carry out a comprehensive business review to modernize Southwest and restore best-in-class profitability. It expects the changes to help drive up Southwest’s stock price to $49 within 12 months, up about 86% from current levels.

Lisa Silverman, senior managing director at global risk consulting firm K2 Integrity, said calling a shareholder meeting could be a risky proposition for Elliott, as index-fund investors tend to vote with management.

Jordan told company employees that the prospect of a special shareholder meeting at this point is a “hypothetical and speculation.”

“Elliott is running a predictable playbook intended to … make you feel that they are in charge,” Jordan said. “They are not.”