After months of tense negotiations and public stunts, it appears that the drama between West Palm Beach, Florida-based hedge fund Elliott Management and low-cost airline 
Southwest Airlines
may have all come to an end this past week. Southwest Airlines has been struggling for years post-pandemic, amid issues relating to its financial performance and weak recovery following the COVID-induced travel downturn.
Elliott Management, an activist investment manager, has been slowly buying up shares in the company and ramping up the heat publicly on the carrier to change its ways, which the hedge fund has indicated many times to be rooted in a poor management team headed by CEO Bob Jordan. For months now, the organization has been calling for change and recently threatened the airline with a public shareholders’ meeting.
The airline has repeatedly doubled down on its support for the existing management team, although it did agree to some minor concessions a couple of weeks ago. For example, chairman Gary Kelly announced he would be retiring in the spring, something which did not seem to satisfy Elliott Management, which kept the public spotlight on the carrier and began to propose new nominees for the airline’s board of directors.
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The two may be close to reaching a compromise about board appointments, but details remain unclear.
Neither side appeared to be ready to back down just last week. Southwest had appointed Rakesh Gangwal, one of the founders of Indian low-cost giant IndiGo, to its board, and he quickly began buying up shares and expressing its support for the existing leadership team. Elliott quickly fired back, doubling down on its plans to call a public shareholders’ meeting.
This week, the two appear to have ironed out a deal
According to The New York Times, Southwest Airlines and Elliott have reached what has been referred to as a “truce,” which both parties hope will have benefits for the airline going forward. Southwest indicated that it would now appoint six new directors to its board, five of which were nominees from Elliott Management. These six directors are as follows:
- Pierre Breber, the former Chief Financial Officer of Chevron
- David Cush, the former CEO of Virgin America
- Sarah Feinberg, the former administrator of the Federal Railroad Administration
- Dave Grissen, the former Group President of Marriott International
- Gregg Saretsky, the former CEO of WestJet
- Patricia Watson, the former Chief Information and Technology Officer at NCR Atleos
Photo: dorengo5 | Shutterstock
This falls short of what the hedge fund had initially demanded, which was the appointment of eight new directors to the board. Nonetheless, the airline withdrew its request for a special meeting. The hedge fund also drew an additional concession when Gary Kelly announced that he would be stepping down on November 1st, earlier than his initial retirement date.
Photo: RebeccaDLev | Shutterstock
Kelly, a key figure in Southwest’s history, will be missed by his colleagues
He is set to be replaced by an independent director. In a statement regarding the announcement of Kelly’s resignation, Southwest director Rakesh Gangwal had the following words to share:
“On behalf of the Board, I want to thank Gary for his countless contributions to Southwest throughout his career. He leaves an indelible mark on Southwest as a pioneer of the Company’s growth into the largest domestic carrier with an industry-leading network, reputation, balance sheet and a bright future.”
Gangwal went on to thank multiple other directors for their extensive service to the airline and commend them for their leadership in the boardroom. He then indicated that the company’s new priority will be to work closely with CEO Bob Jordan to continue preserving the company’s identity and culture while returning to a path of growth and positive financial performance.
Photo: Markus Mainka | Shutterstock
Elliott has undeniably got what it wanted from Southwest
Despite not removing Bob Jordan from his position, it is difficult to argue that Elliott did not get exactly what it wanted out of this debacle. The public spotlight is on Southwest’s leadership team to deliver, with new board members and a CEO Bob Jordan who barely held his job and will need to perform to not face similar threats again.
Photo: Royce Ngiam | Shutterstock
Elliott’s leadership team is undeniably excited by the announcement made last week. In a statement, Elliott Partner John Pike and Portfolio Manager Bobby Xu had the following words to share:
“We are pleased to have come to an agreement with Southwest on the addition of six new directors that will enhance and revitalize its Board. They are all highly qualified and will bring diverse skills and backgrounds to the task of overseeing Southwest under the leadership of a new Board Chairman.”
The investors also went on to underscore their belief that the strategic changes made by Southwest will position the carrier for better performance and create long-term shareholder value. Pike and Xu attribute much of this turnaround to a new set of independent directors with ample industry experience.
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Elliott: Southwest Airlines Has Seen “Billions Of Dollars Of Profitability Deterioration” Under CEO Bob Jordan
Elliott Investment Management has continued to express its dissatisfaction with Southwest Airlines’ current CEO.
So how has the market reacted?
Last Thursday, when the deal was announced around lunchtime, Southwest shares immediately began to rise, following a slow decline in trading prices since the latest blows in the fight between the two carriers had been launched. Since the deal’s announcement, Southwest share prices have been slowly creeping up, now up nearly 7% since Thursday.
Photo: Markus Mainka | Shutterstock
Since early August, Southwest shares have risen nearly 26%, after a drop in prices that occurred around the time Elliott first began publicly criticizing the airline’s leadership team. At the end of the day, the hedge fund has seen prices rise and new directors appointed, placing the airline in a strong position to pursue growth and a return to sustained profitability in the following years.