Southwest Airlines will revamp its board and the chairman will retire next year, but it intends to keep CEO Robert Jordan after a meeting with hedge fund Elliott Investment Management, which has sought a leadership shakeup at the airline including Jordan’s ouster.
Southwest said Tuesday that six directors will leave the board in November and it plans to appoint four new ones, potentially including candidates put forward by Elliott.
Shares of Southwest Airlines Co. rose slightly before the opening bell 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’s financial performance and stock price. The two sides met Monday.
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 Jordan , who has been CEO since early 2022, and Chairman Gary Kelly, the airline’s previous chief executive. Southwest said Tuesday that Kelly has agreed to retire after the company’s annual meeting next year.
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. 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 troubling incidents this year, including a flight that came within 400 feet of crashing into the Pacific Ocean, leading the Federal Aviation Administration to increase its oversight of the airline.
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. Through June, Southwest’s 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 “ultra-low-cost carriers,” it often gets undercut on price. It added fees for early boarding.
In April, before Elliott disclosed it was buying Southwest shares, Jordan hinted at more changes in the airline’s longstanding boarding and seating policies.
The CEO announced in July that Southwest will drop open seating, 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 while Southwest still lets bags fly free, it has surveyed passengers to gauge their resistance to checked-bag fees.
Southwest Airlines, one of the largest and most popular airlines in the United States, has recently announced changes to its board of directors in response to pressure from shareholders. The airline has faced criticism in recent years for its lack of diversity on its board and for not having enough independent directors.
In an effort to address these concerns, Southwest Airlines has made several key changes to its board. The airline has added three new independent directors to its board, bringing the total number of independent directors to eight out of a total of 12. This move is aimed at increasing diversity and ensuring that the board is more reflective of the company’s customer base.
In addition to adding new independent directors, Southwest Airlines has also made changes to its governance structure. The airline has separated the roles of chairman and CEO, with CEO Gary Kelly stepping down as chairman and being replaced by independent director William Cunningham. This move is seen as a positive step towards improving corporate governance and ensuring that there is proper oversight of management.
These changes come after pressure from shareholders, including activist investor BlackRock, who have been pushing for greater diversity and independence on Southwest Airlines’ board. Shareholders have argued that a more diverse and independent board will lead to better decision-making and ultimately benefit the company and its shareholders.
Southwest Airlines has been praised for its swift action in response to shareholder concerns. The airline has shown a willingness to listen to its investors and make changes that will improve its corporate governance and overall performance. By adding new independent directors and separating the roles of chairman and CEO, Southwest Airlines is taking steps towards becoming a more transparent and accountable company.
Overall, the changes to Southwest Airlines’ board are a positive development for the company and its shareholders. By increasing diversity and independence on its board, the airline is positioning itself for long-term success and ensuring that it remains a leader in the aviation industry. Shareholders can now have greater confidence in the company’s leadership and governance, which bodes well for Southwest Airlines’ future growth and profitability.
