Southwest Airlines to keep CEO despite Elliott's call of 'inadequate' management

By Tomi Kilgore

Executive Chairman Gary Kelly to retire next year amid urging by activist investor Elliott to refresh leadership

Shares of Southwest Airlines Co. descended Tuesday, after the air carrier expressed confidence in Chief Executive Bob Jordan's leadership, despite calls from activist investor Elliott Investment Management L.P. that management was "inadequate."

But Executive Chairman Gary Kelly, who was also called out by Elliott, announced plans to retire next year, as part of a continued "refreshment" of the companies board of directors.

Kelly's retirement will be effective after the 2025 annual meeting, which is expected to be held in May.

Southwest's announcement comes a day after the company was scheduled to meet with Elliott, as the hedge fund, which owns about 11% of the shares outstanding, said it was hopeful that the central question of leadership would be part of the discussion.

Southwest's stock (LUV) slumped 3.1% in morning trading, after initially rising as much as 1.4% in the premarket after the announcement.

Regarding CEO Jordan, Southwest said he is implementing "intentional changes to transform the business, meet evolving customer preferences, enhance the customer experience, further modernize the airline, and drive shareholder returns."

That follows criticism from Elliott that leadership had "stubbornly" adhered to antiquated business practices.

Read: Southwest Airlines to end hallmark open seating and offer extra legroom, but remains cautious on the rest of 2024.

Six other board members announced plans to step down, after the board meeting in November, and the company expects to appoint four new independent directors "in the near future."

"In addition to considering Elliott's director candidates, the nominating and corporate governance committee has engaged a leading independent search firm to identify and review strong candidates who can bring complementary skills and experience to lead the airline forward," the company said in a statement.

Elliott said it was "unprecedented" that nearly half of Southwest's board had decided to resign based on shareholder feedback.

"We are pleased that the board is beginning to recognize the degree of change that will be required at Southwest, and we hope to engage with the remaining directors to align on the further necessary changes," Elliott said.

Also following urging from "a variety of shareholders," Southwest said it has eliminated the executive-committee structure and created a new finance committee. The committee's mandate will be to oversee financial, operations and business plans, as well as strategies such as major transactions and capital-allocation priorities.

The stock has now slipped 0.2% year to date, while the U.S. Global Jets ETF (JETS) has lost 1.6% and the S&P 500 has advanced 15%.

-Tomi Kilgore

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09-10-24 1003ET

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