Under pressure from Elliott Investment Management, Southwest Airlines announced its Executive Chairman will retire early and that it will place six “independent” members on its Board of Directors.
Southwest Airlines Announces Six New Board Members, Early Departure Of Bob Kelly
Southwest Airlines Executive Chairman Gary Kelly has accelerated his retirement, which will now take place effective November 1, 2024. Previously, Kelly had announced his retirement in the spring of 2025. Chief Executive Bob Jordan will remain in his role…for now.
Southwest also appointed six new “independent” directors to its board, including:
- Pierre Breber – former Chevron executive
- David Cush – former Virgin America executive who engineered merger with Alaska Airlines
- Sarah Feinberg – former Chief of Staff to the U.S. Secretary of Transportation and interim president and CEO of the New York City Transit Authority
- Dave Grissen – former Marriott executive
- Gregg Saretsky – former WestJet executive
- Patricia Watson – current executive at NCR Atleos (retail banking company)
The new appointments will take effect on November 1, 2024. Kelly called the news a “collaborative resolution” with Elliott. Elliott, which holds an 11% stake in Southwest Airlines, has called for more dramatic change at the Dallas-based carrier.
> Read More: The New Coke Problem – Gary Kelly Ousted From Southwest Airlines Board
The Wall Street Parallel
View From The Wing did an outstanding job of drawing a parallel between what Elliott is trying to do at Southwest Airlines and the famous 1987 Wall Street movie. Recall that in the film, Bud Fox (Charlie Sheen), a young stockbroker, teams up with Gordon Gekko (Michael Douglas) to “turn around” Bluestar Airlines (ultimately destroying it for a short-term stock gain):
One: we modernize. Our computer software is dogshit. We update it. We squeeze every dollar out of each mile flown. Don’t sell a seat to a guy for 79 bucks when he’s willing to pay 379. Effective inventory management will increase our load factor by 5-20%. That translates to approximately $50-200 million in revenues. The point being, we can beat the majors at a price war.
Two: advertising. More, and aggressive. We attack the majors.
Three: expansion. We expand our hubs to Atlanta, North Carolina and St Louis. And we reorganize all of our feeder schedules.
We gotta think big, guys. We’re going after the majors.
In a situation that is eerily identical to the fictional movie, Elliott holds 11% of Southwest (Gekko had 12% of Blustar) and what does it like about Southwest? Its “unlevered balance sheet” with $17 billion in unencumbered assets.
What a plan: load up the company with debt, initiate share buybacks, and then bail. The result: Elliott walks away with a windfall profit and Southwest is destroyed.
Think this is a wild conspiracy theory? Wait and see.
I hate that the “Munich Syndrome” seems to be at play here…the more Southwest Airlines gives, the more aggressive Elliott becomes in demanding more. I hope that today’s changes to the board will stall Elliott’s greed, but I doubt it will stop Elliott from trying to go much further at a planned December shareholder meeting.
Yes, Southwest has underperformed. Yes, Southwest has been slow to recognize changing trends in business and leisure travel. But, Southwest Airlines has become a storied carrier with loyal customers and loyal employees through its unique business model, not despite of it. To throw it all away due to a season of change is pure foolishness.
It’s time to let the new board do its job and see if these smaller changes (like assigned seating and extra legroom seats) will make a positive difference. Steady wins the race.
To the majority of shareholders at Southwest: beware. I don’t view Elliott as anything more than a virus that must be eliminated.
CONCLUSION
Oh yes, I have harsh words against Elliott. I don’t believe the investment firm cares about Southwest Airlines, its customers, or its employees. I do not believe its intentions are noble.
Southwest is already in the midst of great change…I hope that it can now stand up to Elliott and not sacrifice what makes Southwest Airlines, Southwest Airlines.
> Read More: The Future Of Southwest Airlines Is Assigned Seating, Redeyes, Premium Options
top image: Southwest Airlines
Two and a half hours in, LUV is down 4.6%. Guess what the market thinks?
“The Wolf Of Wall Street Parallel”
That was a different movie from Wall Street…
“Steady wins the race.”
True, but if what you hypothesize is true, then it seems like Southwest doesn’t have that long, as Elliot is in it for a sprint, not a marathon.
Yes, I know…I saw both. But I’m calling Elliott a Wolf, a modern day Gekko.
Yeah, your analogy didn’t work. The Wolf of Wall Street movie and book is so popular that using it for any of purposes makes your analogy less effective to argue your point.
I understand the difference between the two movies…but I meant to call Elliott a wolf.
This all sounds familiar. I keep thinking of Carl Icahn and TWA. He stripped it of any valuable assets, forced it to sell Heathrow slots, and loaded up the airline with mega debt.
Same situation with Frank Lorenzo and Eastern/Continental in the late ‘80s.
I feel Southwest is in a far superior position than TWA when Ichan came knocking, but Southwest will be severely wounded in the long run.
Ouch!!
Might as well rename it Elliott Airlines and someone needs to start a new LUV Airlines. SW won’t look anything like SW pretty soon.
Have they considered rebranding Southwest as a credit card company that also sells flights?
Kinda curious about Malik’s opinion on this
No other U.S. major airlines has 17 billions of unencumbered assets. “Elliott” will force SWA management to sell many of them for dividend or share buyback. Assets could include slots at LGA and DCA, which are important, but not strategic to SWA.
I think you nailed it. Seriously. But we’ll see how it plays out.
Elliot and his leveraged buyout ilk are the scum of the earth who destroy companies for “shateholder” value. They may couch it in fancy terms of private equity today, but their model is the same.
All thanks to Reagan
Not a particular fan of Elliot but let’s be real.
Southwest’s product is behind the times.
Their technology is horrible and many of the Southwest “quirks” only exist because their technology holds them back, and has for a long time.
Gary Kelly did nothing to change these things and why he got more than one courtesy year as executive chairman is beyond me, his departure can’t come a day too soon.
Bye-bye Southwest Airlines…at least the airline that we’ve known. Oh how we miss Herb.