Summary of Southwest Chair Kelly to step down next year as activist Elliott pushes for changes at airline

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    Southwest Airlines Faces Pressure from Activist Investor

    Activist investor Elliott Investment Management has been applying pressure on Southwest Airlines, seeking to shake up the airline's leadership and operations.

    • Elliott, a firm known for its aggressive campaigns to force change at companies, holds a nearly $2 billion stake in Southwest.
    • The firm has been critical of Southwest's recent performance, deeming it "stunning underperformance" under the current leadership.
    • In June, Elliott revealed its stake and called for the removal of CEO Bob Jordan, who has been with the airline for almost four decades.

    Elliott's Demands for Change

    Elliott's demands have led to significant changes at Southwest, including the retirement of executive chairman and former CEO Gary Kelly.

    • Kelly, who has been with Southwest for nearly four decades, will step down after the company's annual shareholder meeting next spring.
    • Six members of Southwest's board will also retire in November, and the company will appoint four new independent directors.
    • Elliott will be allowed to nominate up to three candidates for these new board positions.

    Southwest's Response to Activist Pressure

    While acknowledging the need for change, Southwest's leadership maintains its support for CEO Bob Jordan.

    • Southwest's board and leadership have stated that they unanimously support Jordan as CEO.
    • The airline has brought in outside experts, such as Bob Fornaro, former CEO of Spirit Airlines and AirTran, to help address its challenges.
    • Southwest is also implementing changes to its business model, such as offering extra legroom and introducing overnight flights.

    Elliott's Campaign and Southwest's Future

    Elliott's campaign has been unprecedented in the airline industry, marking the first time the activist firm has targeted a major carrier.

    • Elliott has previously targeted companies like AT&T, Salesforce, and Texas Instruments.
    • The firm's influence has already led to significant changes at Southwest, and further developments are anticipated.
    • The outcome of this battle between the activist investor and Southwest will have a significant impact on the future of the airline.

    Southwest's Financial Performance and Challenges

    Southwest's recent performance has been affected by factors such as an oversupplied domestic U.S. market, higher costs, and aircraft delivery delays from Boeing.

    • The airline has struggled to maintain its traditional business model, which had earned it nearly unbroken decades of profits.
    • Southwest's investment-grade balance sheet, built on its past success, is now facing pressure as the airline navigates its current challenges.
    • The company is taking steps to adapt to the evolving market, but it remains to be seen whether these changes will be enough to restore profitability.

    The Significance of the Activist Campaign

    The activist campaign against Southwest highlights the growing influence of activist investors in corporate governance.

    • These investors are often willing to take bold actions to pressure companies into making changes that they believe will benefit shareholders.
    • Their campaigns can lead to significant changes in leadership, strategy, and financial performance.
    • The outcome of the Southwest situation will likely shape the way other companies respond to activist investor pressure in the future.

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