Southwest Airlines recently announced that Gary Kelly, the executive chairman and former CEO of the company, will be retiring next year. This news comes as the airline faces pressure from activist investor Elliott Investment Management for leadership changes. In a letter to shareholders, Kelly stated that “now is the time for change” and emphasized the importance of knowing what to change and what not to change.
Elliott Investment Management, which holds a nearly $2 billion stake in Southwest, has been calling for the ousting of current leadership, including CEO Bob Jordan. The firm claims that Southwest has experienced “stunning underperformance” under their leadership. However, in his statement, Kelly expressed the board and leadership’s unanimous support for Bob Jordan as CEO.
As part of the shakeup, six board members at Southwest will retire in November, and the company plans to appoint four new independent directors soon, with consideration given to up to three of Elliott’s candidates. Elliott has crossed the 10% threshold required to call a special meeting, indicating its determination for change at the airline.
This is not the first time Elliott Investment Management has sought to make changes at a company. The firm has previously launched campaigns at companies such as AT&T, Salesforce, and Texas Instruments. However, this is the first time they have publicly pushed for change at an airline.
In response to its challenges, Southwest has brought in outside experts, including Bob Fornaro, the former CEO of Spirit Airlines and AirTran. The airline has been facing difficulties in an oversupplied domestic market, higher costs, and aircraft delivery delays from Boeing, its sole supplier.
For years, Southwest resisted making changes to its simple business model, which has played a significant role in the airline’s success and profitability. However, in July, the company announced significant changes, such as offering extra legroom on its aircraft and eliminating its open seating policy. It also plans to introduce overnight flights, or “redeye” flights, next year.
To further address its challenges and outline its future plans, Southwest has scheduled an investor day on September 26 in Dallas. During this event, the airline will provide more details on its initiatives and strategies moving forward.
Overall, Southwest Airlines is undergoing significant changes in leadership and board composition, driven by activist investor Elliott Investment Management. The airline is also grappling with various industry challenges, including an oversupplied market, higher costs, and aircraft delivery delays. However, Southwest remains confident in its CEO Bob Jordan and is determined to navigate these challenges successfully.
