By Rajesh Kumar Singh and Shivansh Tiwary
(Reuters) -Southwest Airlines on Tuesday announced changes to its board including the retirement of its Chairman Gary Kelly, but reiterated its support for CEO Bob Jordan amid calls for a shakeup from activist investor Elliott Investment Management.
The Dallas-based airline said Kelly would voluntarily retire after Southwest’s annual meeting next year, and that six directors will also voluntarily step down after the board meeting in November.
Southwest plans to appoint four new independent directors in the near term, which would potentially include up to three candidates proposed by Elliott.
The airline’s board has also set up a new finance committee to oversee financial, operational, and business plans and strategies and capital structure, among other things.
Southwest’s shares, which have fallen about 38% in the past three years, were down about 4% at $28.49 in morning trade.
Elliott – one of the world’s most powerful activist investors – has launched a boardroom battle, demanding the ouster of both Kelly and Jordan. It wants to change the way the Southwest has been running its business in order to make it compete better in the modern airline industry.
It has blamed the airline’s underperformance on its management’s “rigid commitment to a decades-old approach”, and has laid out plans to replace two-thirds of the board’s 15 directors. Elliott now holds enough stake in the company to call a special shareholder meeting.
While Southwest has dubbed the boardroom fight as “a battle for the heart” of the company and its future, it’s been willing to negotiate a deal.
Kelly and two of Southwest’s independent directors held a meeting with Elliott in New York on Monday where they shared a specific framework to address the hedge fund’s concerns about corporate governance and performance.
In a letter to shareholders after the meeting, Kelly said the company would continue to engage “constructively” with Elliott for a “collaborative resolution.”
The hedge fund called the board changes “unprecedented,” but added Southwest still faced an “urgent” need for “thoughtful, deliberate change.”
“We hope to engage with the remaining directors to align on the further necessary changes,” it said in a statement.
Southwest has been struggling to find its footing after the pandemic. It has been hit hard by its over-reliance on Boeing, for its fleet due to regulatory and safety struggles that have reduced the jetmaker’s ability to deliver new planes.
It has also been facing pricing pressure as an industry-wide overcapacity in the domestic market has dampened airfares.
To turn around its fortunes, it plans to end longstanding practices of open seating. The company will offer assigned and extra-legroom seats to attract premium travelers, and start overnight flights. It is due to share more details on Sept. 26.
Kelly said the company’s new business plan is based on the feedback from shareholders and will usher it in “the next era of customer loyalty and strong financial performance.”
(Reporting by Shivansh Tiwary in Bengaluru and Rajesh Kumar Singh in Chicago; Editing by Shilpi Majumdar, Jan Harvey and Nick Zieminski)