Skift Take
Gary Kelly has been a part of the Southwest family for almost four decades. Will his departure and that of six other board members be enough to keep Elliott happy?
Southwest Airlines chairman Gary Kelly plans to retire from the company’s board at the end of his term in 2025 after the annual shareholder meeting, the carrier said in a statement Tuesday morning. Six other directors will also leave the board.
The announcement comes after Southwest’s board of directors met with Elliott Investment Management on Monday. The hedge fund put up an 11% activist stake in the airline, pushing for Kelly and CEO Bob Jordan to resign.
However, Southwest said Jordan continues to have unanimous support from the board and leadership team. The carrier also plans to nominate four independent directors to its board and will consider Elliott’s recommendations.
In a letter to Southwest shareholders, Kelly said he and two other independent directors met with Elliott in the hedge fund’s New York office. Kelly he believed they were able to have a “productive dialogue.” Elliott did not immediately respond to a request for comment.
“Now is the time for change. It’s time to shake things up, not just stir them a bit. The wisdom comes in knowing what to change and what not to change,” Kelly said in his letter. “We know that changes are required to some of our historic business practices. We know we will need to continually bring in new talent – in leadership and on the Board.”
Some of Southwest’s biggest changes so far include rolling out premium seating and red-eye flights.
Southwest said it “intends to continue its constructive engagement with Elliott toward a collaborative resolution in the near term.” The airline has previously said it would unveil more changes at its Investor Day on September 26.
Kelly’s Nearly 40-Year-Long Career at Southwest
Kelly started at Southwest in 1986 as a controller, eventually becoming the company’s chief financial officer in 1989. He was Southwest’s CFO for around 15 year before he was promoted to CEO in 2004. Jordan became Southwest’s CEO after Kelly stepped down from the top post in 2022.
The longtime executive has been chairman of Southwest’s board since 2008, which ultimately ended up becoming an issue for Elliott. The hedge fund argued that much of Southwest’s board and leadership had spent the majority of their careers at the airline, which made it more difficult for them to adapt to a changing consumer landscape.
“My role has been leading Board oversight, but it has always been transitional, which begs the question as to our vision for the role going forward,” Kelly said in the letter. “I love this Company and its People, and I have been loyal and devoted for nearly four decades. That’s not entrenchment.”
Elliott’s Activist Campaign Spurs a Major Shakeup
Ever since Elliott made its stake in Southwest public in June, it’s been demanding major changes at the airline — the biggest including the resignations of Kelly and Jordan.
The hedge fund has also wanted Southwest to consider implementing baggage fees, along with other major changes to its business model, saying that the carrier had “written off key commercial innovations and revenue opportunities.”
Southwest has underperformed this year. Its profits dipped by 46% in the second-quarter. Southwest also reported a loss in the first quarter and it exited four airports — a rare move for the airline.
Since Elliott’s activist campaign, Southwest has announced new initiatives like premium seating, partnerships with Google Flights and Kayak, and red-eye flights. But it’s unclear if those changes, coupled with Kelly’s departure, will be enough for Elliott to relent.
Watch Southwest CEO Bob Jordan at the 2023 Skift Aviation Forum
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