In a settlement with minority stakeholder Elliott Investment Management, Southwest Airlines is appointing six new directors to its board and accelerating the retirement of executive chairman Gary Kelly.
The Dallas-headquartered company disclosed a flurry of appointments alongside its third-quarter financial results on 24 October, as the carrier hopes to reverse a trend of broadly disappointing financial performances.
Profits continued to lag, as Southwest reports making $67 million – down 65% from its $193 million of profits during the third quarter of 2023. However, the carrier’s revenues rose to $6.87 billion from $6.53 billion, a year-on-year increase of 5.3%.
Chief executive Bob Jordan, who remains in the company’s top leadership position despite pressure from Elliott to step down, says that the results “reflect initial progress against our plan”.
David Cush, Sarah Feinberg, Dave Grissen, Gregg Saretsky and Patricia Watson will begin on 1 November as independent directors of the board “in connection with cooperation and information-sharing agreements” with Elliott, Southwest says.
Pierre Breber, formerly chief financial officer of Chevron, rounds out the latest board additions. Southwest had disclosed earlier this year the appointments of Robert Fornaro, former CEO of Spirit Airlines, and Rakesh Gangwal, co-founder of IndiGo.
The board overhaul apparently avoids a special shareholder meeting, which Elliott had formally requested to be held in December.
Elliott, which owns roughly 11% of Southwest shares, has been pushing for major turnover of Southwest’s leadership team for several months. It had previously suggested the additions of Cush, who previously worked as CEO of Virgin America, and Saretsky, who formerly led WestJet.
“We’ve added a number of airline experts,” Jordan says. ”What I like is that they bring a variety of experience – you’ve got folks that started airlines, who have worked on ULCCs, low cost, something closer to a legacy. Not arguing that we’re going to do any of those things in Southwest Airlines, but they will certainly help stretch our thinking.”
Previously due to retire after the company’s shareholder meeting next year, Kelly – formerly Southwest’s long-time CEO – will now retire on 1 November.
”It has been the honour of my lifetime to work with our people and serve our customers in making Southwest the leader it is today,” Kelly says. ”I believe Southwest’s best days lie ahead under the vision and leadership of Bob Jordan and the oversight of this reconstituted board.”
Southwest says that the board will appoint a ”new independent chairman”.
As previously disclosed, six members of the airline’s board – David Biegler, Veronica Biggins, US senator Roy Blunt, William Cunningham, Thomas Gilligan and Jill Soltau –will step down on the same date. As part of the changes, the board will be reduced to 13 members from 15 following the company’s annual shareholder meeting next year.
The turnover includes a “refreshed” finance committee, which is responsible for overseeing Southwest’s operational and strategic plans.
”The board has taken a lot of time to engage with shareholders and get feedback and taken significant steps based on that feedback,” Jordan says. ”There’s been a lot of board refresh that had already begun, and it’s ongoing. We’re very pleased to have come to a collaborative resolution with Elliott.
“I can promise you, it’s all eyes forward here as we work to set up Southwest for success for generations to come.”
SHIFTING STRATEGIES
Jordan has taken ownership of Southwest’s sweeping strategic shift, which encompasses major changes to the carrier’s fleet, network and operations. The overhaul, already in motion for several months, will see Southwest abandon its open-seating policy, overhaul its aircraft cabins and re-think its fleet strategy through the end of the decade.
Specifically, Southwest will equip its all-Boeing-737 fleet with “premium” seats, which will represent roughly one-third of seats on the jets. Currently, the carrier offers only standard economy seats. Next year, it will start modifying the cabins of some 50-100 aircraft monthly until its entire fleet has been retrofitted.
Southwest also plans to introduce red-eye flights and shave minutes off its gate turnaround times in a bid to boost efficiency.
Taken altogether, the changes will result in $500 million in annual savings by 2027, company executives say.
Southwest says those savings do not include expected “tailwinds” from a fleet-management plan that will include selling older 737-800s and and newer 737 Max jets.
”We have 694 aircraft in our order book, and with our moderated capacity plans, we don’t need that many airplanes,” says chief financial officer Tammy Romo. ”We’ll manage accordingly, based on what’s thrown our way with regard to the situation at Boeing.”
Southwest is monitoring Boeing’s ongoing machinists’ strike, which was recently extended by the union’s rejection of the airframer’s latest offer.
Jordan says that ”if the strike goes much further, obviously, we’ll have to decide how we we adjust our fleet next year, or, you know, adjust our appetite in our schedule”.
