Southwest Airlines is undergoing significant changes within its board, with an announcement that the chairman will retire next year. Despite calls for a leadership overhaul from hedge fund Elliott Investment Management, CEO Robert Jordan will remain at the helm following recent discussions.
In a statement released Tuesday, Southwest Airlines disclosed that six directors will depart the board in November, with plans to appoint four new members, potentially including candidates nominated by Elliott.
Prior to the opening of trading, shares of Southwest Airlines Co. experienced a slight uptick. Elliott, led by billionaire investor Paul Singer, has recently acquired a 10% stake in the airline, advocating for strategic changes aimed at enhancing Southwest’s financial performance and stock valuation. The meeting between the two parties took place on Monday.
Elliott has expressed concerns over the airline’s management, citing a more than 50% decline in stock price over the past three years. The hedge fund is pushing for the replacement of both Jordan, CEO since early 2022, and Gary Kelly, the current chairman and previous CEO. Kelly has agreed to step down after the company’s annual meeting next year.
Elliott claims Southwest’s leadership has failed to adapt to evolving customer preferences and modernize its technology, a deficiency that contributed to a significant flight cancellation incident in December 2022, costing the airline over $1 billion.
Southwest has made operational improvements, with its cancellation rate since the beginning of 2023 being slightly lower than the industry average and outperforming major competitors such as United, American, and Delta. However, the airline has faced scrutiny this year due to several concerning incidents, including a flight narrowly avoiding disaster over the Pacific Ocean, prompting increased oversight from federal regulators.
Historically, Southwest thrived as a profitable airline, never reporting a full-year loss until the pandemic devastated the travel sector in 2020. Following the pandemic, Southwest’s profitability has surpassed that of American Airlines but lags behind Delta Air Lines and United Airlines. Data indicates Southwest’s operating margin was slightly negative through June, in contrast to 10.3% for Delta, 8.8% for United, and 5.3% for American.
Southwest Airlines has transformed from a budget airline operating primarily from secondary airports into a competitor at major airports, often facing pricing pressure from “ultra-low-cost carriers.” Recently, it has introduced fees for early boarding as part of its evolving business strategy.
In April, before Elliott publicly began purchasing shares, CEO Robert Jordan hinted at impending adjustments to the airline’s long-standing boarding and seating policies. In July, Jordan confirmed that Southwest will replace its open seating policy with assigned seating—a standard practice among U.S. carriers—and will offer premium seating options with extra legroom.
While maintaining its policy of allowing free checked bags, Southwest has actively surveyed passengers about potential reception to introducing fees for checked luggage.
