It’s a challenging time at Southwest Airlines. The airline isn’t performing as well financially as it used to, though things are quickly changing.
For one, an activist investor took a major stake in Southwest, and is calling for radical changes at the airline. At the same time, the current management team is working on making updates to the business model to increase revenue, from introducing assigned and extra legroom seating, to adding redeye flights to the schedule, to reducing turn times.
We know that Elliott Investment Management (Southwest’s new activist investor) has been calling on major management changes at the airline. We’re now starting to see the first of that become a reality…
Southwest making major changes to its Board
It has just been announced that Southwest Airlines Executive Chairman Gary Kelly will be stepping down after the company’s 2025 Annual Meeting. Gary Kelly has been at Southwest for 38 years, and served as CEO of the airline from 2004 to 2022, so he was in that role for 18 years. He has also served as Chairman of the company since 2008, when Southwest founder Herb Kelleher retired.
On top of Kelly leaving the airline, six current Directors have informed the Board of their plans to voluntarily step down immediately after the regularly scheduled Board meeting this November.
The Board anticipates appointing four new independent Directors in the near future. In addition to considering Elliott’s Director candidates, the Nominating and Corporate Governance Committee has engaged an independent search firm to identify and review candidates who can bring complementary skills and experience to lead the airline forward.
Southwest highlights how after these changes take place, the average tenure of the Board will be decreasing drastically. 75% of the company’s Directors will have three years or less tenure on the Board, and the average Board tenure will be reduced from 7.3 years to 2.5 years.
Usually a company wouldn’t necessarily promote the lack of tenure as a good thing, but the strategy here seems pretty intentional. Elliott Management wants big changes at the company, and presumably the goal is to highlight how a Board with less tenure might be more open to changing things.
Gary Kelly expresses confidence in Bob Jordan
Gary Kelly has written a letter to shareholders of the company, explaining the logic behind his retirement. His decision to step down at the airline follows a meeting with Elliott Management in New York on Monday, with the objective to “meet, in person, and commence a productive dialogue.” Kelly calls the dialogue productive, even though it ultimately ended with him announcing his retirement.
It very much seems like Kelly is sacrificing himself, in hopes of Southwest Airlines CEO Bob Jordan being able to keep his role. The primary message of Kelly’s letter is how he has no issues with a refresh of the Board, but emphasizes that the entire Board has faith in Jordan’s ability to lead the carrier.Here’s how Kelly describes Jordan:
The Board and leadership of Southwest unanimously support Bob Jordan as CEO. 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. Bob is a hands-on, detailed, and insightful thinker with a deep knowledge of this complex industry and business. More importantly, he understands Southwest, our Culture, and our unique brand.
Only time will tell how this plays out. Elliott Management has been trying to push for both Kelly and Jordan to leave the airline, and it looked increasingly likely that they’d be able to force this. Clearly Kelly took one for the team, and realized he’d probably be gone soon enough anyway if he didn’t leave voluntarily.
We’ll see if Kelly leaving the company is enough for Jordan to keep his job, or if Elliott Management is going to try to get rid of him as well. Personally I wouldn’t be surprised if Elliott Management still finds a way to force Jordan out.
Bottom line
Southwest Airlines Executive Chairman Gary Kelly is stepping down, after nearly four decades at the airline. This follows Elliott Management taking a stake in the company, and trying to overhaul the management team. Elliott Management has been trying to get rid of both Kelly and Jordan, so Kelly is now leaving voluntarily(ish), but is expressing support for Jordan.
What do you make of this Southwest management shakeup?
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