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With the announcement that Executive Chairman Gary Kelly will step down, Southwest Airlines has caved into activist investor Elliott Investment Management. But Southwest Airlines must zealously guard against a “New Coke” disaster as it seeks a return to profitability.

Gary Kelly Will Step Down At Southwest Airlines In 2025

Gary Kelly takes on the “venerable” title at Southwest:

  • He has spent 38 years at the company
  • Since 2018, he has been Chairman of the Board (after the retirement of Herb Kelleher)
  • From 2004 to 2022, he was Southwest’s CEO

During that time, Southwest has grown and until recently has been consistently profitable.

But with growth stalled and profits elusive, Elliott Investment Management has increased its stake in the Dallas-based airline and become an activist investor.

Among other things, Elliott has demanded a leadership change and fresh blood on the board. Although Southwest Airlines is already in the process of making changes including adding redeye flights and assigned seating, Elliott has made a lot of noise and demanded top leaders to step down.

Now Kelly will step down next year. Additionally, six current directors will voluntarily step down after the November board meeting. The vacancies will allow Elliott to push its preferred candidates on the board.

It appears there was some strategy at play: after a meeting with Elliott yesterday, Kelly may have sacrificed himself to protect CEO Bob Jordan:

The Board and leadership of Southwest unanimously support Bob Jordan as CEO. Bob has a proven track record over decades and, most importantly, he has what it takes to lead Southwest through a significant transformation and usher in a new era of profitable growth, innovation, and industry leadership. Bob is a hands-on, detailed, and insightful thinker with a deep knowledge of this complex industry and business. More importantly, he understands Southwest, our Culture, and our unique brand.

Will Elliott accept Jordan as CEO or continue press for his ouster as well?

My Prediction: New Coke

When I think about Elliott taking over Southwest, I think about the New Coke disaster in 1985.

I view Elliott as the sort of firm that comes in and ruins companies out of a lust for short-term stock gains: a trojan horse. I have no confidence in its ability to turn Southwest around. Quite the contrary, I think it will deeply harm Southwest the way Eddie Lampert and his investment company raped and pillaged Sears and K-Mart, destroying those storied brands through the trope that there was but one path to avoid destruction.

Southwest Airlines is about to change in a structural way and not all the changes are bad: the introduction of redeye flights is a great thing. Assigned seats will be attractive to many customers. There is no doubt that the status quo was not working.

But when you destroy the business model and make Southwest no different than a legacy carrier, it cannot compete. Its route network cannot compete and its differentiators like generous legroom and free checked baggage are not just gimmicks, but fundamental parts of the culture and draw of the airline, which is often more expensive than its competitors.

I fear Southwest will fall victim to the “New Coke” syndrome and will find its changes, if too aggressive, will drive even more people away, reduce revenue, and ultimately exacerbate the problem, not solve it.

Southwest is a solid company with a tried and tested business model. Turning it upside down is highly unlikely to produce sustainable results, even if Wall Street likes the short-term changes (sometimes, we foolishly equate progress with busy work).

CONCLUSION

Gary Kelly will “voluntarily step down” at Southwest Airlines after a meeting with Elliott, but is pushing for Bob Jordan to remain CEO. The carrier is preparing a major change to its business model that will be announced later this month and several board vacancies should allow Elliott Investment Management more influence around the table.

But Southwest Airlines must be careful not to fall prey to the “New Coke” syndrome. Change cannot be so drastic that consumers lose what they love and has made Southwest distinct: Southwest cannot just mimic others and expect to succeed.

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