Southwest Airlines chairman to step down amid Elliott battle

Southwest Airlines Co. Chairman Gary Kelly is stepping down along with six directors, a dramatic move after the carrier faced calls for a strategic overhaul from activist investor Elliott Investment Management.

Kelly, 69, will “voluntarily retire” from the board and his executive chairman position immediately after the 2025 annual meeting, Southwest said Tuesday in a statement. The six directors will depart after the November board meeting.

Southwest reaffirmed support for Chief Executive Officer Bob Jordan, who Elliott has been seeking to force out. It wasn’t immediately clear if the activist firm would accept Southwest’s plan, and Elliott didn’t immediately respond to requests for comment.

Southwest said it presented the changes to Elliott Monday and invited the firm to be part of the company’s turnaround. The airline will continue to seek a “collaborative resolution” with the activist, which has proposed 10 new directors for the 15-member board.

The board departures underscore the high stakes in the carrier’s battle with Elliott, which has pushed to oust both Kelly and Jordan. The activist has accused the airline’s leaders of refusing to modernize operations, hurting shareholders and leaving Southwest unable to withstand operational and competitive challenges.

In a letter Tuesday to shareholders, Kelly said it’s “important that we not delay the meaningful board refreshment and corporate governance changes already underway.” The proposals incorporated feedback from “a range of other shareholders” on issues raised by Elliott.

Southwest’s shares were little changed as of 8:54 a.m. before regular trading Tuesday in New York. The Dallas-based carrier, which has a market capitalization of about $18 billion, advanced 2.9% this year through Monday, compared with a 15% increase in the S&P 500.

New Leadership

Elliott, which disclosed a $1.9 billion stake in the carrier in June, has said Southwest needs “fresh, proven executive leadership from outside the company” and an internal review by a special committee to turn around its performance.

Southwest has taken multiple steps in response, including adopting a poison pill shareholder rights plan and naming a veteran airline executive to its board. The carrier also made strategic shifts to add a premium section onboard and adopt assigned seating after more than a half-century.

More recently, Southwest has been polling customers on the possibility of adding checked-bag fees for certain fares, which could end the airline’s “bags fly free” policy.

Under the latest changes to the board, Southwest will lose its most senior directors and the heads of critical board committees. In addition to Kelly, departures include William Cunningham, the lead director who has been on the board for 24 years; compensation committee chairman David Biegler, a member for more than 18 years; and Veronica Biggins, head of the corporate governance committee and a 13-year director.

Others leaving are Thomas Gilligan, head of the audit committee; Jill Soltau and former Senator Roy Blunt. While Gilligan has been a director for nine years, Blunt and Soltau have each served less than two years.

The carrier said it plans to name four new, independent directors “in the near future.” It will consider Elliott’s board candidates, but also has hired a search firm to identify other prospective nominees. Board tenure would be reduced to 2.5 years after the changes from 7.3 today, Southwest said.

The carrier also will create a new finance committee to oversee financial, operational and business plans and strategies going forward.

Former CEO

Kelly had been chairman since May 2008 and served as Southwest’s CEO for more than 17 years, during which he transformed the discounter into the largest US carrier by domestic passengers and extended its network abroad. 

He took over in 2004 as the industry recovered from the 9/11 terrorist attacks and extended Southwest’s industry-best run of annual profits, which began in 1972 and ended in 2020 as the pandemic upended travel.

Led by Paul Singer, Elliott is one of the world’s most active boardroom agitators. The firm had already launched campaigns at companies with a combined market value of about $100 billion this year — including at UK-listed miner Anglo American Plc and Japanese trading house Sumitomo Corp.

The Southwest push came shortly after another activist, investor Carl Icahn, took a stake in JetBlue Airways Corp. earlier this year. That carrier subsequently gave the shareholder two board seats.