Activist investment firm Elliott Investment Management has entered into discussions with Southwest Airlines aimed at reaching a settlement that would prevent a proxy fight over control of the airline's board, according to a report by Bloomberg News.

The report cites sources familiar with the situation as confirming that Elliott has proposed a settlement framework that would grant it representation on Southwest’s board without taking full control. While the talks are progressing and moving toward a potential resolution, sources caution that no final agreement has been reached and negotiations could still collapse.

Last week, the hedge fund formally called for a special shareholder meeting to be held on 10 December, submitting proposals to replace eight of the company's directors and take control of the board. Southwest criticised the timing of the special meeting, noting that it coincided with one of the busiest travel periods of the year, which could "maximise disruption."

Elliott, which owns 10% of Southwest’s common stock, has been pushing for months to shake up the board, remove CEO Bob Jordan, and reassess the airline’s strategy in an effort to improve its financial performance and stock price.

In response to pressure, Southwest recently rolled out several initiatives to boost profits, including partnerships, vacation packages, and sale-leaseback deals for its aircraft.