Elliott Management Calls for Overhaul of Southwest Airlines' Board and Strategy

Elliott Management is calling for a major overhaul of Southwest Airlines' board and strategy. The hedge fund has been critical of the airline's leadership and operations, citing concerns about its ability to compete in a rapidly changing industry.

Southwest Airlines has faced significant challenges in recent years, including flight cancellations and delays, which have led to a decline in customer satisfaction. The airline's stock price has also taken a hit, falling by over 20% in the past year.

Elliott Management has invested heavily in Southwest Airlines, holding a significant stake in the company. Its call for change is likely motivated by a desire to see the airline's stock price recover and its operations improve.

Elliott Management, a $69 billion hedge fund, has a roughly 10 percent stake in Southwest Airlines, making it one of the airline's largest shareholders.

The hedge fund is seeking significant changes to the airline's board and strategy to revive its flagging stock price, which has fallen 44 percent over the past five years.

Elliott has called for abandoning Southwest's unique open-seat boarding process for a more commonplace assigned-seating system and adding more premium options.

The airline is expected to put in place many of these ideas as part of the truce with Elliott.

Elliott has nominated five independent directors to join the Southwest board, and the airline will also appoint another board member.

Gary Kelly, who led Southwest for decades as chief executive and then as chairman since 2022, will retire on Nov. 1, instead of in the spring as previously planned.

The hedge fund had hoped to install eight directors, but instead, it will have significant representation on the Southwest board, which is set to shrink to 13 members next year.

Elliott did not gain majority control or persuade Southwest to replace Bob Jordan, its chief executive of two years, despite criticizing his leadership.

Southwest Airlines has agreed to appoint six new directors to its board as part of a truce with Elliott Investment Management, one of its largest shareholders.

Gary Kelly, who led Southwest for decades as chief executive and then as chairman since 2022, will retire on November 1, instead of in the spring as previously planned.

The airline will shrink its board to 13 members next year, giving Elliott significant representation.

Elliott had nominated five independent directors, including David Cush, a former chief executive of Virgin America, and Gregg Saretsky, a previous chief executive of WestJet.

Southwest will also add another board member, bringing the total number of new directors to six.

The airline is putting in place many of the ideas recommended by Elliott, including abandoning its unique open-seat boarding process for a more commonplace assigned-seating system.

Southwest reported better-than-expected earnings in the third quarter, including 15 cents of adjusted profits per share, which exceeded analyst expectations.

The airline's stock price has fallen 44 percent over the past five years, prompting Elliott to call for major changes to revive it.

Elliott Management's move to nominate ten independent directors to Southwest Airlines' board is a significant development that could lead to major changes in the company's strategy and operations. This action, representing an 11% economic interest in Southwest, signals strong dissatisfaction with the current board's performance and management's accountability.

The proposed slate includes four former airline CEOs, which brings a wealth of experience to the table.

Individuals with expertise in technology, hospitality, and regulatory oversight are also part of the proposed slate, which could address Southwest's recent operational challenges.

Southwest's unique culture and labor relations remain uncertain in the face of potential board changes.

A board shake-up could lead to strategic shifts, potentially affecting Southwest's business model, cost structure, and market positioning.

Investors should closely monitor this situation, as changes could unlock shareholder value, but may also bring short-term volatility and execution risks.