Southwest Airlines and Elliott Reach Deal to Keep CEO
Southwest Airlines has entered into a significant agreement with activist hedge fund Elliott Investment Management, successfully averting a potential proxy fight. The deal involves the appointment of six new directors to the airline’s board while ensuring that CEO Bob Jordan retains his position. This move comes alongside the earlier retirement of Executive Chairman Gary Kelly, who will step down next month rather than next year.
In a joint statement released on Thursday, Elliott’s representatives, John Pike and Bobby Xu, expressed satisfaction with the agreement, stating, “We are pleased to have come to an agreement with Southwest on the addition of six new directors that will enhance and revitalize its Board.” The board will now include five of Elliott’s nominees and former Chevron CFO Pierre Breber, expanding its membership to 13.
As part of the deal, the Southwest board will select a new chairman to replace Kelly, signaling a shift in leadership as the airline seeks to adapt to changing market conditions. Elliott had previously called for the removal of both Kelly and Jordan, criticizing the airline’s leadership for not implementing faster sales and profit-boosting strategies.
Southwest Airlines has traditionally maintained a business model with few significant changes over its 50-year history, but it is now poised to modify long-standing policies, such as its open seating arrangement. The airline plans to introduce a new single-class cabin model for premium seating options, similar to offerings by more profitable competitors like Delta Air Lines.
Despite these challenges, Southwest’s stock has seen a rise of over 6% this year, compared to a 21% increase in the S&P 500. The airline’s third-quarter profit, announced alongside the board agreement, exceeded analysts’ expectations, providing further evidence of its potential for recovery.
The Dallas-based carrier is actively reducing unprofitable routes to optimize costs and improve profitability. During an investor day last month, Southwest outlined new revenue initiatives that are projected to contribute an additional $4 billion in earnings before interest and taxes (EBIT) by 2027. In support of this financial strategy, the airline has also authorized a $2.5 billion stock buyback program, with the first $250 million of repurchases announced on Thursday.
Just a week prior to this agreement, Elliott and Southwest were preparing for a proxy fight, with Elliott pushing for a special meeting in December to vote on a revised slate of board nominees, which had been reduced from ten to eight. This campaign was largely focused on the removal of Kelly and Jordan from their respective roles.
The addition of eight new directors, stemming from both the settlement with Elliott and Southwest’s previous board refreshment efforts, marks one of the most substantial board changes led by an activist investor in a U.S. company. In September, Southwest announced a reduction in its board size from 15 to 12 members; however, the current agreement restores the board to 13 members.
As the leadership at Southwest undergoes these changes, Kelly expressed confidence in the airline’s future, stating, “I believe Southwest’s best days lie ahead under the vision and leadership of Bob Jordan and the oversight of this reconstituted Board.” With this new direction, Southwest Airlines aims to strengthen its position in the competitive airline industry while navigating the challenges of the current market environment.
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Sources: AirGuide Business airguide.info, bing.com, cnbc.com