Chairman Gary Kelly to Retire in 2025 as Elliott Investment Management Pushes for Changes
Southwest Airlines (LUV) is set for a significant leadership transition as long-serving chairman and former CEO Gary Kelly announced he will retire in 2025. The change comes in response to increasing pressure from Elliott Investment Management, which has been advocating for substantial changes at the Dallas-based airline.
In a letter to shareholders, Kelly, who has spent nearly four decades at Southwest Airlines, acknowledged the need for a shift in leadership. “Now is the time for change. It’s time to shake things up, not just stir them a bit,” he said. Kelly emphasized that the challenge lies in discerning what aspects of the company to change while maintaining the core elements that have contributed to its success.
Kelly’s retirement announcement follows a meeting with Elliott Investment Management, which revealed in June that it had acquired a nearly $2 billion stake in the airline. Elliott, led by billionaire Paul Singer, has been pushing for a leadership overhaul at Southwest, including a call to replace CEO Bob Jordan, who, like Kelly, has spent almost four decades with the airline. Elliott argues that Southwest has suffered from “stunning underperformance” under the current leadership team.
Despite the pressure from Elliott, Kelly made it clear that the company’s board remains steadfast in its support of Jordan, stating that Southwest’s leadership “unanimously supports Bob Jordan as CEO.” Jordan, who took over as CEO in February 2022, has been working to steer the airline through a challenging period marked by rising operational costs, Boeing aircraft delivery delays, and a competitive domestic U.S. market.
Board Overhaul in Response to Investor Activism
In addition to Kelly’s planned retirement, Southwest announced that six of its current board members would retire by November, and the airline would appoint four new independent directors in the near future. This move is seen as a concession to Elliott’s demands, with the airline considering up to three of Elliott’s proposed candidates for the new board.
This board shake-up reflects a growing trend of activist investors demanding change at large corporations, particularly in cases where performance lags behind expectations. Elliott Investment Management, which crossed the 10% ownership threshold required to call a special shareholder meeting, has previously launched high-profile campaigns at companies like AT&T, Salesforce, and Texas Instruments. However, its push for change at Southwest marks the firm’s first public effort to influence leadership at an airline.
Elliott’s involvement comes at a time when Southwest is struggling to maintain its edge in an increasingly saturated U.S. airline market. The airline’s longstanding business model, which features low fares, point-to-point service, and an open seating policy, revolutionized the industry in its early years and enabled Southwest to achieve decades of profitability. Yet, recent years have exposed the limits of this approach as operational costs rise and customer preferences evolve.
New Strategic Directions for Southwest
In an effort to address these challenges, Southwest has begun to implement strategic changes to its business model. In July, the airline announced its most significant updates in over 50 years of operation. These changes include offering extra legroom on select flights and discontinuing its open seating policy, moves designed to enhance the passenger experience and make the airline more competitive in the modern market.
Additionally, Southwest plans to introduce overnight or “redeye” flights in 2025, a shift that will enable it to better compete with legacy carriers that offer more extensive schedules. These moves, while significant, mark a departure from the company’s traditional focus on simplicity and cost savings, signaling that Southwest is willing to adapt in the face of industry changes.
In a nod to its evolving strategy, Southwest has also enlisted the expertise of former Spirit Airlines and AirTran CEO Bob Fornaro, who will provide guidance as the company navigates these changes. Fornaro brings valuable experience in managing low-cost carriers, and his insights could prove pivotal as Southwest redefines its business model.
Investor Day to Set the Course for the Future
Southwest is scheduled to hold an investor day on September 26 in Dallas, where it will provide further details on its evolving strategy and upcoming initiatives. The airline is expected to expand on its recent changes and outline plans for future growth as it seeks to regain investor confidence.
As Southwest faces mounting challenges in a competitive airline market, the pressure from Elliott Investment Management signals that significant shifts are underway. With a board overhaul, leadership changes, and strategic updates in the pipeline, the airline’s future will depend on its ability to adapt while staying true to the values that have defined its success for over 50 years.
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