Southwest Airlines on Tuesday announced an overhaul of its board of directors, including the planned departure of its executive chairman, Gary Kelly, after a meeting with a hedge fund that has called for sweeping changes at the company.
The board announced the changes while expressing unanimous support for the airline’s chief executive, Bob Jordan, who with Mr. Kelly had been the target of sharp criticism from the hedge fund, Elliott Investment Management. In a statement, the airline said its board was “confident that there is no better leader” for Southwest than Mr. Jordan, who became chief executive in February 2022.
“Bob has a proven track record over decades and, most importantly, he has what it takes to lead Southwest through a significant transformation and usher in a new era of profitable growth, innovation and industry leadership,” Mr. Kelly, who was chief executive before Mr. Jordan took over, said in a letter to shareholders.
Southwest presented its plan to Elliott at a meeting in New York on Monday. It was not clear whether the overhaul would satisfy Elliott, which has a roughly 11 percent stake in the company. Elliott has called for both Mr. Kelly and Mr. Jordan to step down and has sought to replace most of the directors on the company’s board.
Shares of Southwest were down nearly 3 percent in morning trading on Tuesday.
“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 in a statement. “The need for thoughtful, deliberate change at Southwest remains urgent, and we believe the highly qualified nominees we have put forward are the right people to steady the board and chart a new course for the airline.”
Mr. Kelly, who was the airline’s chief executive for nearly two decades before Mr. Jordan took over, said that he planned to retire after the airline’s annual meeting in the spring. Six other mostly longstanding board members plan to step down after a meeting in November.
About half of the 15 directors on the board have been in their positions for three years or less. After the revamp, that share will rise to 75 percent. The airline said its board would appoint four new members “in the near future” and would consider candidates recommended by Elliott. After Mr. Kelly steps down, the board will have 12 directors.
Elliott, which has a long history of seeking big changes at publicly-traded companies, had criticized Mr. Kelly and Mr. Jordan for their management of the company, blaming them for a steep decline in Southwest’s share price in recent years. It has called on the board to exercise greater oversight and announced plans last month to nominate 10 new board members, a group that included many former aviation executives.
But Mr. Kelly defended his and Mr. Jordan’s stewardship of the company, calling Southwest “unquestionably the most successful commercial carrier in the history of aviation.”
Among the four large U.S. airlines, Southwest is the only company never to have sought bankruptcy protection, and it has been profitable almost all of its roughly 50-year history.
“Southwest’s profit streak was only interrupted by the pandemic, as even Southwest was not immune to Covid-19,” Mr. Kelly said. “However, the years preceding the pandemic saw Southwest producing record returns on invested capital and to shareholders.”
The airline had already announced major changes in response to Elliott’s criticisms, including overhauling its unique boarding process in favor of assigned seating and adding red-eye flights and more premium options.
Mr. Kelly also said on Tuesday that the board would establish a new committee to oversee corporate strategy and financial performance. Southwest plans to provide additional updates at a presentation this month to investors in Dallas.
