Southwest Airlines will appoint six new directors, as part of a truce with Elliott Investment Management, the big activist investor seeking to shake up the airline.
Southwest will appoint five independent directors whom Elliott has nominated, as well as another board member, the airline said Thursday. In return, the hedge fund withdrew its demand for a special shareholder meeting, at which it had hoped to install eight directors.
As part of the agreement, Gary Johnson, who led Southwest for decades as chief executive and then as chairman since 2022, will retire on Nov. 1, instead of in the spring as previously planned. He will be replaced by an independent chair.
The pact heads off a potentially disruptive clash between Southwest and Elliott, a $69 billion hedge fund that is one of the airline’s largest shareholders, with a roughly 10 percent stake. Elliott presented a plan last month for making changes to the airline’s business, and shortly afterward, the company said it would overhaul its board.
The agreement also ends what was expected to be one of the more prominent fights between a company and an activist investor at a time when such battles are being waged across corporate America. Activist hedge funds have called for change at a wide range of businesses, including the drug maker Pfizer and the pharmacy and insurer CVS.
Elliott, which is known for its shareholder activism, had called on Southwest to adopt major changes to revive its flagging stock price, which has fallen 44 percent over the past five years. Among the hedge fund’s recommendations were abandoning Southwest’s unique open-seat boarding process for a more commonplace assigned-seating system and adding more premium options.
The airline is putting in place many of those ideas.
The deal on Thursday gives Elliott significant representation on the Southwest board, which is set to shrink to 13 members next year. Among the directors the fund has put up for consideration are David Cush, a former chief executive of the Virgin America airline; Gregg Saretsky, a previous chief executive of WestJet; and Sarah Feinberg, a former administrator of the Federal Railroad Administration.
Still, Elliott did not gain majority control. Nor did it persuade Southwest to replace Bob Jordan, its chief executive of two years, despite criticizing his leadership.
Separately, Southwest on Thursday reported better-than-expected earnings in the third quarter, including 15 cents of adjusted profits per share, which excluded some compensation and legal expenses. That was more than double what analysts had expected, according to Bloomberg.
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