Southwest Airlines will revamp its board and the chairman will retire next year, but it intends to keep CEO Robert Jordan in a partial concession to hedge fund , which has been pushing for changes at the airline including Jordan鈥檚 ouster.
Southwest said Tuesday that six directors will leave the board in November and it plans to appoint four new, independent directors, potentially including candidates put forward by Elliott.
Shares of Southwest Airlines Co. fell 4% in morning trading Tuesday.
Elliott, the fund led by billionaire investor Paul Singer, has built a 10% stake in recent weeks and advocated changes it says will improve Southwest鈥檚 financial performance and stock price.
Elliott blames Southwest鈥檚 management for the airline鈥檚 lagging stock price -- even after a rally in the past month it has dropped by more than half since April 2021. The hedge fund wants to , who has been CEO since early 2022, and Chairman , the airline鈥檚 previous chief executive.
Southwest said Tuesday that Kelly has agreed to retire after the company鈥檚 annual meeting next year. Kelly was among three Southwest directors who met with Elliott representatives Monday in New York. Six other directors, including the chairs of three board committees and former U.S. Sen. Roy Blunt, R-Mo., will leave in November.
In a letter to shareholders Tuesday, Kelly wrote that Southwest鈥檚 recovery from the pandemic has been challenging because of higher costs.
鈥淣ow is the time for change," Kelly wrote. "It鈥檚 time to shake things up, not just stir them a bit.鈥� He said changes to Southwest's routes, marketing and seating will transform the airline.
However, he dismissed changing the CEO, calling Jordan 鈥渁 hands-on, detailed, and insightful thinker鈥� who understands Southwest's 鈥渦nique brand" and enjoys unanimous support of the board.
Elliott praised the moves but suggested that its pressure on Southwest is not over.
鈥淲e are pleased that the board is beginning to recognize the degree of change that will be required at Southwest, and we hope to engage with the remaining directors to align on the further necessary changes,鈥� the hedge fund said. Elliott said its nominees are "the right people to steady the board and chart a new course for the airline."
Elliott has argued that Southwest leaders haven鈥檛 adapted to changes in customers鈥� preferences and failed to modernize Southwest鈥檚 technology, contributing to massive flight cancellations in December 2022. That breakdown cost the airline more than $1 billion.
Southwest has improved its operations, and its cancellation rate since the start of 2023 is slightly lower than industry average and better than chief rivals United, American and Delta, according to FlightAware. However, Southwest planes have been involved in a series of this year, including a flight that came within 400 feet of crashing into the Pacific Ocean, leading the Federal Aviation Administration to of the airline.
Southwest was a profit machine for its first 50 years 鈥� it never suffered a full-year loss until the pandemic crushed air travel in 2020.
Since then, Southwest has been more profitable than American Airlines but far less so than Delta Air Lines and United Airlines. Through June, Southwest鈥檚 operating margin in the previous 12 months was slightly negative compared with 10.3% at Delta, 8.8% at United and 5.3% at American, according to FactSet.
Southwest was a scrappy upstart for much of its history. It operated out of less-crowded secondary airports where it could turn around arriving planes and take off quickly with a new set of passengers. It appealed to budget-conscious travelers by offering low fares and no fees for changing a reservation or checking up to two bags.
Southwest now flies to many of the same big airports as its rivals. With the rise of 鈥渦ltra-low-cost carriers,鈥� it often gets undercut on price. It added fees for early boarding.
In April, before Elliott disclosed it was buying Southwest shares, Jordan in the airline鈥檚 longstanding boarding and seating policies.
The CEO announced in July that Southwest will , in which passengers pick from empty seats after they board the plane, and start assigning passengers to seats, as all other U.S. carriers do. Southwest also will sell premium seats with more legroom and launch red-eye flights.
And while Southwest still lets bags fly free, it has surveyed passengers to gauge their resistance to checked-bag fees.
David Koenig, The Associated Press
