Southwest is replacing its board of directors and its chairman is due to step down next year, but it plans to keep Chief Executive Robert Jordan in his position in some concessions to hedge fund Elliott Investment Management, which had called on the airline to make reforms, including firing Jordan.
Southwest Airlines said Tuesday that six of its directors will step down in November and that it plans to appoint four new independent directors, potentially including candidates recommended by Elliott.
Southwest Airlines shares fell 4% during trading hours on Tuesday and closed 1.6% down at $29.25.
Elliott, the fund led by billionaire investor Paul Singer, has acquired a 10 percent stake in recent weeks and is pushing for changes it says will improve Southwest's performance and stock price. Three Southwest directors met with Elliott representatives in New York on Monday.
Elliott has blamed Southwest's management for causing shares to fall by more than half in three years. The hedge fund wants Jordan, who has been CEO since the start of 2022, to replace the airline's former CEO and Chairman, Gary Kelly.
Southwest announced on Tuesday that Mr Kelly has agreed to retire after the airline's annual meeting next year. Letter to Shareholders Southwest Airlines said rising costs are making it harder for it to recover from the pandemic.
“It's time for change,” Kelly wrote. “Not just to stir things up a bit, but to shake things up.”
He said changes to seating, premium options and overnight flights would transform the airline.
Six other directors, including the chairmen of three board committees and former Sen. Roy Blunt (R-Missouri), are scheduled to step down in November.
Elliott repeated Kelly's comments on a website providing information about the proxy fight with Southwest Airlines.
“Southwest is in urgent need of thoughtful, planned change and we believe the highly qualified candidates we have recommended are the right people to stabilize the board and chart a new direction for the airline,” Elliott said.
Elliott argues that Southwest executives' failure to adapt to changing customer preferences and modernize the company's technology led to widespread flight cancellations in December 2022. The disruptions cost the airline more than $1 billion.
Southwest has been improving its operations, with cancellation rates slightly below the industry average and better than major rivals United Airlines, American Airlines and Delta Air Lines through the start of 2023, according to FlightAware. But Southwest's planes have been hit by a series of A nasty incident This year, the FAA said it had seen a plane crash within 400 feet of the Pacific Ocean. Strengthen supervision Of the airline.
Southwest Airlines has been profitable for 50 years and had never suffered a full-year loss until 2020, when the pandemic devastated air travel.
Since then, Southwest has been more profitable than American Airlines, but far less so than Delta and United Airlines. In the trailing 12 months through June, Southwest's operating margin was slightly negative, compared with Delta's 10.3%, United's 8.8% and American's 5.3%, according to FactSet.
For most of its history, Southwest was a swashbuckling upstart that operated from less-crowded secondary airports where it could turn around arriving planes and quickly pick up new passengers. It appealed to budget-conscious travelers with low fares and free rebookings and the ability to check up to two bags.
Southwest now serves many of the same major airports as its rivals and, with the rise of “ultra-low-cost” airlines, has often slashed its prices and added fees for early boarding.
In April, before Elliott announced it was buying Southwest's stake, Jordan Further changes were suggested The airline's long-standing boarding and seating policies.
In July, he announced that Southwest would end its open seating system, where passengers could choose from available seats after boarding, and would begin to assign seats to passengers, in line with other U.S. airlines. Southwest will also sell premium seats with extra legroom.
Southwest Airlines still carries checked bags for free, but conducted a survey to gauge passenger resistance to checking baggage fees.
