DALLAS – Southwest Airlines will revamp its board of directors, and longtime Chairman Gary Kelly will retire next year, the company announced Tuesday morning.
Southwest leadership will also share an updated business plan later this month at the company’s investor day in Dallas.
The shakeup also comes as Southwest makes other big changes, including ending its open seating policy and adding redeye flights to its schedule.
Elliott blames Southwest’s management for the airline’s stock price dropping by more than half over three years.
The hedge fund wants to replace Robert Jordan, who has been CEO since early 2022, and Kelly, the airline’s previous chief executive.
Southwest said Tuesday that Kelly has agreed to retire after the company’s annual meeting next year, but Jordan will stay in his role.
Elliott argues that Southwest leaders haven’t adapted to changes in customers’ preferences and failed to modernize Southwest’s technology, contributing to massive flight cancellations in December 2022.
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.
Southwest was a profit machine for its first 50 years — 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.
DALLAS—Southwest Airlines said Tuesday morning that it will reorganize its board of directors and that longtime chairman Gary Kelly will retire the following year.
Elliott Investment Management, a hedge fund that owns a 10% stake in the Dallas-based airline and has pushed for improvements it claims will boost Southwest’s financial results and stock price, has put pressure on the carrier recently.
The parties convened on Monday. Southwest announced in a press release and SEC filings on Tuesday morning that six of its directors will step down in November and that it will appoint four new ones, possibly including candidates Elliott has recommended.
At the company’s investor day in Dallas later this month, Southwest executives will also present an updated business plan.
Along with these significant adjustments, Southwest is also scrapping its open seating policy and expanding its flight schedule to include redeye flights.
Elliott attributes the more than three-year decline in Southwest Airlines’ stock price to the airline’s management. Kelly, the airline’s previous CEO, and Robert Jordan, who has been in that role since early 2022, are targets for replacement by the hedge fund. As of Tuesday, Southwest announced that Jordan will continue in his position, while Kelly has decided to step down following the company’s annual meeting in 2019.
Elliott contends that a large number of flight cancellations in December 2022 were caused in part by Southwest executives’ failure to update the airline’s technology and to adjust to shifting consumer preferences. The airline lost more than $1 billion as a result of that malfunction.
According to FlightAware, Southwest has enhanced its operations, and since the beginning of 2023, its cancellation rate is marginally lower than the industry average and superior to that of its main competitors, United, American, and Delta. Unfortunately, a number of alarming incidents involving Southwest aircraft this year—including one that nearly crashed into the Pacific Ocean 400 feet from shore—have prompted the FAA to step up its oversight of the airline.
Up until 2020, when the pandemic crippled air travel, Southwest was a profit machine for the first fifty years of its existence.
Compared to American Airlines, Southwest has been more profitable since then, but still far less than Delta Air Lines and United Airlines. According to FactSet, through June, Southwest’s operating margin for the preceding 12 months was marginally negative, while Delta, United, and American had operating margins of 10.3%, 8.8%, and 5.3 percent, respectively.
