Southwest Airlines Bends to Activist Pressure

Elliott Management: You’re cleared for takeoff.

The famed activist investor group scored a major victory in its quest to oust much of the board at Southwest Airlines, with chairman and longtime company executive Gary Kelly announcing his retirement amid broader board turnover. Next up on the agenda for Elliott: overhauling what it sees as an outdated business strategy.

Boarding Process

Elliott announced its activist campaign back in June, built on a roughly $2 billion, 10% stake in the storied airline. Its presence was felt nearly immediately. By the end of July, Southwest announced the end of its free-for-all open-seating process, upending over 50 years of company tradition in the process.

Then, last month, Elliott upped the stakes again, announcing it would launch a proxy battle for the company’s board, with ambitions to replace 10 of the board’s 15 members. On Tuesday, part of that plan finally became reality:

• In addition to Kelly — who transitioned from CEO to chairman in 2022 and said in a letter to shareholders after meeting with Elliott this week that the latter position was always meant to be transitional — Southwest announced Tuesday that six board members would be resigning in November.
• Southwest says it would replace up to three of those members with candidates Elliott proposed in August. The airline has continued to defend CEO Bob Jordan, despite him being in Elliott’s crosshairs.

“The need for thoughtful, deliberate change at Southwest remains urgent, and we believe the highly qualified nominees we have put forward are the right people to steady the Board and chart a new course for the airline,” Elliott representatives said in a statement that also called the resignations “unprecedented.” Shares of Southwest fell around 1.7%.

Clipped Wings: Southwest’s problems remain numerous. A delay in Boeing deliveries has crunched its expansion efforts, and, unlike many industry peers, the historically low-cost airline has struggled to cash in on the premium seating boom. As part of the turnaround effort, Southwest has tapped former Spirit Airlines CEO Robert Fornaro as an outside advisor — though we’re not entirely sure how the leader of the airline known for cramped seats and no free water is well-suited to give advice on building a better First Class experience.