Southwest Airlines chairman Gary Kelly to retire amid activist pressure from Elliott Management

Southwest Airlines Co (NYSE: LUV) is making headlines after its chairman, Gary Kelly, announced plans to “voluntarily” retire in 2025.

The decision follows discussions with activist investor Elliott Management, which has been pushing for a change in leadership to address the airline’s recent underperformance.

Kelly has been with the airline since the late 1980s, and his retirement marks a significant shift for the company.

Elliott Management, which now holds more than a 10% stake in Southwest Airlines, has been advocating for new management to steer the airline back on course.

The activist investor is eligible to call a special meeting and initiate a vote to remove both CEO Bob Jordan and chairman Gary Kelly.

While Elliott has yet to officially comment on Kelly’s retirement, the move aligns with its broader campaign for leadership change.

Southwest Airlines had previously adopted a “poison pill” strategy in July to fend off Elliott Management’s influence.

However, it appears the pressure has resulted in significant boardroom changes.

Southwest Airlines supports CEO Bob Jordan

In addition to Kelly’s retirement, Southwest Airlines confirmed that six other directors will step down following the board meeting in November.

Despite these changes, the airline reiterated its support for CEO Bob Jordan, signaling that it does not intend to replace him at this time, despite Elliott’s push for new leadership.

Elliott Management has reportedly proposed 10 new candidates for the board but has not confirmed whether it will allow Jordan to continue as CEO.

Further updates are expected at Southwest Airlines’ upcoming investor event, scheduled for September 26th.

Ahead of the event, LUV shares have surged over 25% from their year-to-date low in early August, reflecting investor optimism about the future direction of the airline.

Is Southwest Airlines stock a buy?

Southwest Airlines has faced significant challenges since April 2021, struggling with increased competition in its core domestic market.

The company’s lagging technology investments and delayed aircraft deliveries from Boeing have further weighed on its stock performance.

Despite these obstacles, Evercore ISI recently upgraded Southwest Airlines stock to “outperform” and raised its price target to $35, indicating an 18% potential upside from current levels.

The investment firm cited the airline’s decision to cut less productive flights and focus on capacity discipline as key reasons for its bullish outlook.

Analysts expect Southwest Airlines to shed more light on new initiatives, such as the introduction of premium economy class and assigned seating, at its upcoming investor day.

These efforts are seen as crucial to improving the company’s revenue and overall performance.

While Evercore remains optimistic about Southwest’s strategy to prioritize margin restoration over aggressive growth, the airline faces short-term financial pressures.

Southwest Airlines is expected to report a loss of 24 cents per share for the current quarter, a sharp contrast to the 38 cents per share earnings it posted during the same period last year.

The company is set to release its Q3 earnings in the final week of October, and investors will be closely watching for further developments.

While Southwest Airlines faces near-term challenges, its strategic focus on capacity discipline and leadership changes may position the company for future growth.

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