There are an enormous number of filings that public companies have to make with the Securities and Exchange Commission (SEC). They are all public and nearly all of them are incredibly boring. But every so often, a routine filing shows us something of interest. That happened this week when Elliott disclosed that it had begun to sell down its holdings in Southwest as the stock price has surged.

It was June 2024 when Elliott Investment Management announced it had taken more than a 10 percent share in the airline and wanted to make big changes. But it wasn’t until August 5, 2024 when Elliott Investment Management filed its SC 13D with the SEC, noting that it had passed that threshold and now held an interest equal to 11 percent of the company’s outstanding shares.

There have been 11 amendments to that original SC 13D (called an SC 13D/A) that have noted additional changes in holdings. It has been a one-way street since that first filing, but now it has for the first time gone in the other direction. Take a look.

Elliott Investment Management Economic Holdings in LUV (with Share Price)

^{Data via SEC, Yahoo! Finance}

It was on September 16 when Amendment 10 was filed showing Elliott had hit its high-water mark of a 16 percent economic interest in the airline. That day, the airline’s shares closed at $31.57.

This is a complicated financial structure which I will gladly admit I don’t fully understand. But the way I see it, Elliott held 9.7 percent of outstanding common shares, and then it had derivative swaps worth an additional 6.3 percent. Those swaps did not carry any voting interest, but they did provide the economic interest of common stock.

Now, on December 16, Elliott has filed Amendment 11 which says its economic interest has dropped to 13.1 percent. That’s actually an increase of common shares to 9.9 percent, but the derivatives have now dropped to 3.2 percent. The stock’s closing price on December 16? That was $42.17.

Elliott, of course, is in this to make money. It said early on that it thought the airline’s $28 share price could easily get up to $49 within a year just by doing a quick business review and, in my words, just copying what every other airline has done and eliminating what made Southwest unique.

Elliott forced the issue, and it wasn’t long after Southwest’s investor day where it touted its own initiatives that the airline gave in to the pressure from Elliott. By the end of October, Elliott and Southwest had an agreement to cooperate. In March, Southwest announced Elliott’s long-desired initiatives were being put into place. Then the clock started ticking.

If Southwest wasn’t able to turn in better results quickly, it was going to be in real trouble. Elliott agreed not to rock the boat until early 2026, but if Southwest hadn’t gotten the stock price up by then, it’s hard to imagine management surviving.

Southwest had been putting out good guidance numbers, but Wall Street just wasn’t a believer that the airline could execute. Other than a couple of temporary blips, the share price stayed in the low $30 range.

After the chaos of the government shutdown which fell into Q4 this year, Southwest put out guidance that was lower, but it did not disappoint. It seems that Wall Street has now finally started believing, and the stock price has been on a consistent march northward since then.

Passing $40 seems to have been a trigger point for Elliott to start liquidating. It made a nice little profit on the shares it sold, but it still holds a very significant stake. If this all continues on the same path that Southwest has been on, I would imagine we will see Elliott continue to shrink into irrelevance and Southwest will finally be rid of that company. But if Southwest falters? It could get wild on the inside over there.

For this reason, Q4 results will be very important, but probably not as important as the guidance that will presumably get released at the same time. Southwest should have some tailwinds, so if it can’t take advantage, that’s a red flag. By Q1, bag fees will be almost entirely in place, except for those who bought their tickets well in advance. And the new seating plan with extra legroom goes into place for flights from the end of January.

I would imagine if the stock keeps climbing, Elliott will keep selling in tranches. It can’t just walk away all at once. The pressure will remain very high on management for some time until Elliott is gone for good.