Gary Kelly, the long-serving chairman of Southwest Airlines, has announced his retirement, set to take place after the company's annual meeting in 2025. This decision comes amid significant pressure from Elliott Investment Management, a powerful activist investor known for its influence in corporate boardrooms. Elliott has been pushing for substantial changes at Southwest, criticizing the airline's management for adhering to outdated strategies and demanding a comprehensive overhaul of the board.
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Kelly's tenure at Southwest spans nearly four decades, during which he served as CEO for 18 years before stepping down in 2022. He took over as chairman from the airline's founder, Herb Kelleher, in 2008. Throughout his leadership, Kelly has been a pivotal figure in maintaining Southwest's unique corporate culture and operational model. However, recent years have seen the airline struggle with various challenges, including the impact of the COVID-19 pandemic, regulatory issues with its Boeing fleet, and increased competition in the domestic market.
Elliott's involvement has brought to light several concerns about Southwest's current trajectory. The investment firm has criticized the airline for missing out on key revenue opportunities and failing to innovate in areas such as ancillary fees. Elliott's demands include the replacement of two-thirds of the board's 15 directors and a strategic shift to address the airline's operational and financial challenges. The firm has also called for a new finance committee to oversee Southwest's business plans and capital structure. In response to Elliott's pressure, Southwest has announced that six directors will voluntarily step down in November, and the airline plans to appoint four new independent directors, potentially including up to three candidates proposed by Elliott. Despite these changes, both Southwest and Kelly have expressed confidence in CEO Bob Jordan's leadership. Jordan, who succeeded Kelly as CEO, is seen as a capable leader with a proven track record.
Southwest's shares have been underperforming, with a decline of about 38% over the past three years. The airline's board changes are viewed by analysts as necessary adjustments rather than a complete overhaul. Elliott has welcomed these changes, describing them as unprecedented and a step in the right direction. The firm continues to emphasize the need for thoughtful and deliberate change at Southwest to navigate the current industry landscape. Kelly's retirement marks the end of an era for Southwest Airlines. His leadership has been instrumental in shaping the airline's identity and success. However, the pressure from Elliott and the subsequent board changes signal a new chapter for the airline, one that will require adaptability and innovation to remain competitive in a challenging market environment.