Six Directors to Retire in November;
Gary Kelly to Retire Immediately
After 2025 Annual Meeting
Board Intends to Appoint Four New Independent
Directors, Potentially Including Candidates Proposed by Elliott
Investment Management L.P., in Near Term
Board Eliminates Executive Committee Structure
and Creates New Finance Committee; New Committee Chairs and Lead
Independent Director to be Named
Board Reiterates Support for Bob Jordan as CEO
Southwest Airlines Intends to Continue
Engagement Toward a Collaborative Resolution with Elliott
Investment Management L.P.
DALLAS, Sept. 10,
2024 /PRNewswire/ -- Southwest Airlines Co.
(NYSE: LUV) (the "Company") today announced the next phase of the
Board's transformation, including significant ongoing refreshment.
The Board presented its plans at a meeting yesterday and invited
Elliott Investment Management L.P. ("Elliott") to participate in
refreshment efforts and other corporate governance changes.
Southwest Airlines intends to continue its constructive engagement
with Elliott toward a collaborative resolution in the near
term.
Southwest Airlines Executive Chairman Gary Kelly also is sending a letter to
Shareholders today detailing these changes, which can be viewed
here, highlighting the following:
Board Composition and Refreshment
Executive Chairman Gary Kelly has
announced his intention to voluntarily retire from the Board and
his Executive Chairman position effective immediately after the
2025 Annual Meeting. Six current Directors have informed the Board
of their plans to voluntarily step down immediately after the
Company's regularly scheduled Board meeting in November:
- David Biegler (Compensation Committee
Chairman)
- Veronica Biggins (Nominating and Corporate Governance
Committee Chair)
- Senator Roy
Blunt
- Dr. William Cunningham (Lead
Director)
- Dr. Thomas Gilligan (Audit Committee Chairman)
- Jill Soltau
The Southwest Airlines Board deeply appreciates the service of
the outgoing Directors, each of whom offered unique experience and
expertise that benefitted all Shareholders. The Company wishes them
all the best in their future endeavors.
The Board anticipates appointing four new independent Directors
in the near future. In addition to considering Elliott's Director
candidates, the Nominating and Corporate Governance Committee has
engaged a leading independent search firm to identify and review
strong candidates who can bring complementary skills and experience
to lead the airline forward.
The airline has added or appointed eight highly qualified
Directors over the past three years, including the recent
appointment of Rakesh Gangwal,
co-founder of India's largest airline, InterGlobe
Aviation (IndiGo). With these changes, the Company expects the
number of Directors serving on the Board to be reduced to 13
following the regularly scheduled November
Board meeting and to 12 following the 2025 Annual Meeting.
Inclusive of all of these changes, 75% of the airline's Directors
will have three years or less tenure on the Board as of the 2025
Annual Meeting and the average Board tenure will be approximately
2.5 years, reduced from 7.3 today.
Corporate Governance Changes
Consistent with feedback from Shareholders, the Board has
eliminated the Executive Committee structure and created a new
Finance Committee with a mandate focused on assisting the Board
with oversight of financial, operational, and business plans and
strategies, major transactions, capital structure and capital
allocation priorities, among other duties. In connection with the
planned Director retirements in November and other Board committees
being reconstituted at that time, the Finance Committee also will
be reconstituted to include both new and incumbent Directors with
relevant strategy and financial expertise. The Board will name a
new Lead Director and new Committee Chairs for each of the Audit,
Compensation, and Nominating and Corporate Governance Committees at
that time as well.
The comprehensive changes announced today reflect feedback from
a variety of Southwest Airlines Shareholders collected through
direct engagement by the Board and build upon deliberate actions by
the Board to embrace fresh perspectives. To supplement the Board's
oversight, the Company has brought in outside experts and
consultants who have provided independent scrutiny and
comprehensive analyses of the plan, including former CEO of Spirit
Airlines and AirTran Airways, Robert
Fornaro.
These moves are intended to further strengthen the Board's
ability to provide effective oversight and to hold Management
accountable as it continues to execute its strategic plan.
Board Confident in CEO Bob
Jordan and Committed to Holding Management Accountable for
Delivering Results
Southwest Airlines' Board is confident that there is no better
leader than Bob Jordan to
successfully execute Southwest Airlines' robust strategy to evolve
the airline and enhance sustainable Shareholder value. Jordan is a
36-year industry veteran who has led the Company through some of
its most turbulent times, while consistently driving
transformational initiatives and innovation.
Over Jordan's tenure at the Company, he has led the acquisition
and integration of AirTran Airways; was instrumental in the
development of Southwest's e-commerce platform; launched a new and
highly successful Southwest Airlines Rapid Rewards®
program; oversaw a wholesale refresh of the Southwest Airlines
brand; led the expansion of the route network domestically and
introduced international flights and, during the height of the
pandemic, led efforts around voluntary retirement and leave
programs that were critical to maintaining Southwest Airlines'
financial strength and sustainability.
Jordan is implementing intentional changes to transform the
business, meet evolving Customer preferences, enhance the Customer
Experience, further modernize the airline, and drive Shareholder
returns. During his tenure as CEO, Jordan has been the visionary
and key driver behind the review and development of the commercial
initiatives outlined at the airline's second quarter financials and
made substantial improvements to the airline's operational
performance, all with a commitment to driving improved financial
performance. Introducing leadership change in the middle of
Southwest Airlines' largest transformation to-date would present
significant risk to the Company and its Shareholders.
The Board has high expectations for Jordan and the executive
leadership team and will continue to hold them accountable for
delivering results.
BofA Securities and Morgan Stanley & Co. LLC are acting as
financial advisors to Southwest Airlines; Vinson & Elkins
L.L.P. and Kirkland & Ellis LLP are acting as legal
advisors.
The following is the full text of Southwest Airlines Executive
Chairman Gary Kelly's letter to
Shareholders:
September 10, 2024
Dear Southwest Shareholders,
I've had the great honor and privilege to serve as an Employee
and Officer of Southwest Airlines for the past 38 years. Throughout
that time, I have been committed to communicating with all of our
constituents with open, honest, and transparent updates. This
letter is among the most important.
Yesterday, two of our independent Directors and I met with
Elliott Investment Management at its New
York office. Our objective was to meet, in person, and
commence a productive dialogue, which I believe we successfully
achieved. We have been committed to engaging constructively with
Elliott since its initial announcement of its investment in
Southwest on June 10 and have
solicited feedback from a range of other Shareholders on the issues
Elliott raised in its presentation and other public communications.
In our meeting with Elliott yesterday, we shared a specific
framework to address its concerns about corporate governance and
performance, and we are continuing to engage constructively toward
a collaborative resolution in the near term. In the meantime, it is
important that we not delay the meaningful Board refreshment and
corporate governance changes already underway, which we discussed
with Elliott, and I have outlined below. Before I do so, however, I
offer a brief perspective.
Southwest is unquestionably the most successful commercial
carrier in the history of aviation. All the credit goes to the
People of Southwest and their strong Culture. From my seat since
joining in 1986 as Controller, the Company's value has grown
60-fold. It had an unprecedented, uninterrupted profit streak of 47
years – despite wars; recessions; oil price spikes; 9/11; the Great
Recession, and all along, an airline environment so brutally
competitive that every major airline in existence in 1986 other
than Southwest is either gone or has gone bankrupt. Southwest's
profit streak was only interrupted by the pandemic, as even
Southwest was not immune to COVID-19. However, the years preceding
the pandemic saw Southwest producing record returns on invested
capital and to Shareholders. Since I stepped down as CEO in 2022,
Southwest has continuously strived to uphold this track record,
while maintaining our passion to serve our Customers and care for
our Southwest Family. Southwest has shown, for more than 53 years,
that these endeavors are not mutually exclusive. In fact, they work
in harmony.
The past several years emerging from the destruction of the
pandemic have been especially challenging, with soaring industry
costs and capacity. Our performance has fallen short of our
expectations. We've faced challenges many times and have overcome
them. We are taking swift and bold action, and we will overcome
these challenges, too. The Southwest leadership team, with
oversight from the Board, has been pursuing meaningful, tactical
changes to the route network; revenue management techniques; and
marketing, merchandising, and distribution methods. A thorough,
comprehensive, and urgent analysis and evaluation of our strategy
has been underway since last year that will transform Southwest,
yet again, and further strengthen our position as the friendly,
reliable and low-cost airline of choice.
Our team, under Bob Jordan's
leadership, recently announced significant changes to our business
model – assigned seating; offering more premium options; red-eye
flights – with more to come at our long-planned Investor Day on
September 26. Our imperative is to
maintain the essence of what makes Southwest unique, special,
successful, and in a category of one. This transformation will be
fueled by our world-class Culture with the best People in the
business who have a passion for serving others. It will
substantially increase our profitability and Shareholder value and
return Southwest to a sustained industry leadership position.
Now, let's turn to our plan.
ISSUE NO. 1: CEO
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. As Executive Vice President & President of AirTran
following Southwest's acquisition, he successfully integrated it
into Southwest's operation. As Chief Commercial Officer, he was
instrumental in the development of Southwest's e-commerce platform,
southwest.com®; the launch of the all-new and highly successful
Southwest Airlines Rapid Rewards® program; the refresh of the
Southwest brand; the expansion of the route network domestically
and the introduction of international flights; and, during the
pandemic, led efforts that allowed over ten thousand Employees to
take voluntary leaves, critical to managing our cash burn during
the crisis.
Through a variety of leadership roles, Bob has been instrumental
in ensuring Southwest's strong financial performance over the last
20 years. He is a strong, passionate, and results-driven leader who
is widely respected throughout the Company and beyond. Only 2.5
years into his role as CEO, he is leading the bold plan to
transform Southwest, maintain our strong financial position – in a
very challenging industry littered with many failures – and drive
Shareholder value. Despite this challenging period, his courage and
resolve have been unwavering, but more time is needed. The added
component of leadership change in the middle of Southwest's largest
transformation to date is simply a risk that the Company and its
Shareholders do not need and cannot afford. This Board will hold
Bob and his leadership team strictly accountable to executing these
plans and delivering Shareholder returns.
ISSUE NO. 2: BOARD CHAIR
I've been Chairman since Herb
Kelleher retired after 30 years in 2008, and it has been an
honor to serve in that role. Since I retired as CEO in 2022, my
additional duties as Executive Chairman, primarily, have been
governmental and community affairs, along with strategies and
innovations like sustainable aviation fuels. During our meetings
with Shareholders, we fielded questions about my role and Bob's
role as our CEO. Make no mistake, Bob runs this airline as CEO, and
that has been the case since 2022 when I retired. My role has been
leading Board oversight, but it has always been transitional, which
begs the question as to our vision for the role going forward. I
love this Company and its People, and I have been loyal and devoted
for nearly four decades. That's not entrenchment. While my heart
will always be with Southwest and a part of me would love to
continue supporting this great Company day-to-day, I recognize it
is critical to demonstrate my immense confidence and support for
Bob Jordan as CEO to all our
Stakeholders. He and his extremely dedicated, talented and proven
leadership team are vital to executing these plans. So, as we enter
this next era, my role will come to a close at the end of my term –
I will be retiring from the Board and my Executive Chairman
position at Southwest's 2025 Annual Meeting of Shareholders in the
spring, and our Board will decide a new Chair at that time. The
next generation is more than ready to take the mantle of leadership
and is already executing the plan that continues to build on our
legacy of success. I had intended to consider this next year as
part of our continuing efforts to refresh the Board, but I've since
decided it is more important to expedite the plan in an effort to
put this governance debate behind us and allow Bob and his team to
focus exclusively on running the airline and restoring our industry
leading performance.
ISSUE NO. 3: REFRESH THE BOARD
We have been refreshing our Board since emerging from the
punishing environment of the pandemic in late 2021, while also
transitioning the CEO role to Bob
Jordan. Since then, we have added eight new independent
Directors, while five have retired. Consistent with Elliott's
proposal and our preexisting intent to continue refreshing the
Board, and based on feedback from many Shareholders, we have
accelerated these efforts. At our upcoming regularly scheduled
Board meeting in November, six of our current Directors will retire
from the Board, and the Board anticipates appointing four new
independent Directors in the near future, including due
consideration of up to three of Elliott's candidates. This is the
framework we proposed to Elliott yesterday.
Directors David Biegler
(Compensation Committee Chairman); Veronica
Biggins (Nominating and Corporate Governance Committee
Chair); Senator Roy Blunt; Dr.
William Cunningham (Lead Director);
Dr. Thomas Gilligan (Audit Committee
Chairman); and Jill Soltau have
decided to retire from the Board. Following their departures in
November, the newly constituted Board will elect a new Lead
Director; a new Audit Committee Chair; a new Compensation Committee
Chair; and a new Nominating and Corporate Governance Committee
Chair.
I am deeply appreciative of the outgoing Directors who have
brought exceptional experiences, insights, and expertise to the
Boardroom for the benefit of our Shareholders. Bill and David were
appointed to the Board when Herb
Kelleher was Chairman and have helped steer us through many
challenges and achieve tremendous accomplishments over their 24 and
18 years, respectively. Veronica joined us 13 years ago and was
previously on the AirTran Board. She was instrumental to our
successful acquisition and integration of AirTran, along with her
expert leadership of our nominating and corporate governance
efforts. Tom joined us nine years ago with a unique background in
economics and perspectives from leading the Hoover Institution as
Executive Director. While newer to our Board, I am especially
grateful to Jill and Senator Blunt for their graciousness in
helping Southwest in its efforts to refresh our Membership and
respond to Shareholder feedback.
Make no mistake, our Board fully understands we are elected by
you to serve our Shareholders.
ISSUE NO. 4: NEW BOARD COMMITTEE
Consistent with feedback from Shareholders, we have eliminated
the Executive Committee structure and formed a new Finance
Committee, with a mandate focused on assisting the Board with
oversight over financial, operational, and business plans and
strategies, major transactions, capital structure and capital
allocation priorities, among other duties. In connection with the
planned Director retirements in November and other Board committees
being reconstituted at that time, the Finance Committee also will
be reconstituted to include both new and incumbent Directors with
relevant strategy and financial expertise.
ISSUE NO. 5: NEW BUSINESS PLAN
I am confident the meaningful changes made to our route network;
revenue management techniques; and marketing, merchandising and
distribution methods – as well as significant new operational
initiatives – collectively will transform the airline and usher in
the next era of Customer loyalty and strong financial performance.
All of these changes reflect significant discussion and debate in
the Boardroom and are informed by direct feedback from Shareholders
over many months, including on pertinent issues such as the
magnitude and pace of our growth, our ability to forecast
accurately, and how to continuously innovate in ways that are
accretive financially and to the unique Southwest brand.
I am hopeful that all our Shareholders will be as enthused as I
am over the direction our leadership and Board are taking us, which
you will hear a lot more about at our Investor Day on September 26.
Overseeing the development and execution of our ambitious yet
eminently achievable business plan has been the Board's top
priority. We have the right Directors on the Board who are focused
on the details, including our newest Directors Rakesh Gangwal and Lisa
Atherton, who bring unique and complementary aviation
experience. To supplement the Board's oversight, we have brought in
outside experts and consultants who have provided independent
scrutiny and comprehensive analyses of the plan, including former
CEO of Spirit Airlines and AirTran Airways, Robert Fornaro.
Bob Jordan has the right team and
the right plan for Southwest's future, and he has all the tools and
expertise needed to ensure its successful execution.
SUMMARY
We acknowledge that significant changes are necessary to
position Southwest for the future and are committed to implementing
those changes. Our Board welcomes input from all Shareholders and
is pleased that yesterday's meeting with Elliott was constructive,
and that we are maintaining an open dialogue about changes underway
at Southwest and how Elliott and its Board candidates may
contribute to those.
The Company has a tremendous amount of work to do but the path
is clear:
- CEO Bob Jordan has the Board's
unanimous support and, along with our executive leadership team, is
vital to executing the transformative business plan. They will be
held accountable for executing the plan.
- I will step down from the Board and as Executive Chairman at
our 2025 Annual Shareholders Meeting, at which time the Board will
elect a new Chairman.
- Six of our current Directors will retire from the Board at our
regularly scheduled Board meeting in November, and the Board
anticipates appointing four new independent Directors in the near
future, with due consideration being given to filling up to three
of those positions with candidates from Elliott's slate.
- We have established a new Board Finance Committee with
oversight of the Company's strategy and financial performance.
- We will share a comprehensive updated business plan at our
September 26 Investor Day in
Dallas.
MOVING FORWARD TOGETHER
Southwest is the most successful airline in history, a
disruptive force, and has been an industry leader for decades. The
People of Southwest and their strong Culture deserve all the
credit. We are determined to continue that history of excellence.
We have an amazing array of strengths that have been sustained and
survived the test of time. We have a strong Culture that is admired
universally and a history of taking care of our People,
demonstrated by never having an involuntary layoff or pay cut,
which is unprecedented for our industry. We have a strong brand,
are famous for our passionate, friendly Customer Service, and as a
result, have devoted fans and loyal Customers. No future management
team or Board must ever squander our Culture or our passion for
Customer Service.
We have one of the world's largest fleets and one of the
nation's strongest route networks. We have the industry's only
all-investment grade balance sheet, an exceptional strength that is
a testament to the excellent and prudent financial management over
five decades. No future management team or Board must ever squander
that in the face of this very challenging, capital-intensive,
labor-intensive, energy-intensive, cyclical, and brutally
competitive business.
Finally, we have the best team in the business.
Now is the time for change. It's time to shake things up, not
just stir them a bit. The wisdom comes in knowing what to change
and what not to change. We know that changes are required to some
of our historic business practices. We know we will need to
continually bring in new talent – in leadership and on the Board.
We know we will need to continue to invest and transform. All that
is underway, while carefully evaluating the choices and executing
with excellence the committed plans. Maintaining the core, the
essence of Southwest while transforming the business is not
mutually exclusive. Taking care of our Employees, while taking care
of Customers, all while creating value for Shareholders are also
not mutually exclusive aspirations. All are important.
On behalf of our Board, we are very grateful for your investment
and support in Southwest and for your earnest feedback. We are
eager for your continuing input, and we look forward to providing
additional updates this month.
Kindest Regards,
Gary Kelly
Executive
Chairman of the Board of Directors
Cautionary Statement Regarding Forward-Looking
Statements
This news release, including the text of the letter to
Shareholders, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). Specific forward-looking statements include,
without limitation, statements related to the Company's challenges,
focus areas, goals, strategies, and initiatives, including with
respect to enhancing sustainable Shareholder value, transforming
the business, meeting Customer preferences, enhancing the Customer
Experience, modernizing the airline, increasing profitability and
Shareholder value, and returning the Company to a sustained
industry leadership position. These forward-looking statements are
based on the Company's current estimates, intentions, beliefs,
expectations, goals, strategies, and projections for the future and
are not guarantees of future performance. Forward-looking
statements involve risks, uncertainties, assumptions, and other
factors that are difficult to predict and that could cause actual
results to vary materially from those expressed in or indicated by
them. Factors include, among others, (i) the impact of fears or
actual outbreaks of diseases, extreme or severe weather and natural
disasters, actions of competitors, consumer perception, economic
conditions, fuel prices, banking conditions, fears or actual acts
of terrorism or war, sociodemographic trends, and other factors
beyond the Company's control, on consumer behavior and the
Company's results of operations and business decisions, plans,
strategies, and results; (ii) the Company's ability to timely and
effectively implement, transition, operate, and maintain the
necessary information technology systems and infrastructure to
support its operations and initiatives, including with respect to
revenue management; (iii) the cost and effects of the actions of
activist shareholders; (iv) the Company's ability to obtain and
maintain adequate infrastructure and equipment to support its
operations and initiatives; (v) the Company's dependence on The
Boeing Company ("Boeing") and Boeing suppliers with respect to the
Company's aircraft deliveries, fleet and capacity plans,
operations, maintenance, strategies, and goals; (vi) the Company's
dependence on the Federal Aviation Administration with respect to
safety approvals for the Company's new cabin layout and the
certification of the Boeing MAX 7 aircraft; (vii) the Company's
dependence on other third parties, in particular with respect to
its technology plans, its plans and expectations related to revenue
management, operational reliability, fuel supply, maintenance,
Global Distribution Systems, and the impact on the Company's
operations and results of operations of any third party delays or
non-performance; (viii) the Company's ability to timely and
effectively prioritize its initiatives and focus areas and related
expenditures; (ix) the impact of governmental regulations and other
governmental actions on the Company's business plans, results, and
operations; and (x) other factors, as described in the Company's
filings with the U.S. Securities and Exchange Commission (the
"SEC"), including the detailed factors discussed under the heading
"Risk Factors" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2023,
and in the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2024.
About Southwest Airlines Co.
Southwest Airlines Co. operates one of the world's
most admired and awarded airlines, offering its one-of-a-kind value
and Hospitality at 117 airports across 11 countries. Southwest took
flight in 1971 to democratize the sky through friendly, reliable,
and low-cost air travel and now carries more air travelers flying
nonstop within the United States
than any other airline1. Based in Dallas and famous for an Employee-first
corporate Culture, Southwest maintains an unprecedented record of
no involuntary furloughs or layoffs in its history. By empowering
its more than 74,0002 People to deliver
unparalleled Hospitality, the maverick airline cherishes a
passionate loyalty among more than 137 million Customers carried in
2023. That formula for success has brought industry-leading
prosperity and 47 consecutive years3 of
profitability for Southwest Shareholders (NYSE: LUV).
Southwest leverages a unique legacy and mission to serve
communities around the world including harnessing the power of its
People and Purpose to put communities at the Heart of its success.
Learn more by visiting Southwest.com/citizenship. As the
airline with Heart, Southwest has set a goal to work toward
achieving net zero carbon emissions by 20504.
Southwest has also set near-term targets and a three-pillar
strategy to achieve its environmental goals. Learn more by visiting
Southwest.com/planet.
1 Based on U.S. Dept. of
Transportation quarterly Airline Origin & Destination Survey
since Q1 2021
2Fulltime-equivalent active
Employees
3 1973-2019 annual
profitability
4 Southwest's net zero by
2050 goal includes Scope 1, Scope 2, and Scope 3 Category 3
emissions only and excludes any emissions associated
with non-fuel products and services, such as inflight service
items.
Important Additional Information
The Company intends to file a proxy statement and
a WHITE proxy card with the SEC in connection with
the solicitation of proxies for the Company's next meeting of
Shareholders (whether an Annual or Special Meeting of Shareholders
(the "Shareholder Meeting")). SHAREHOLDERS OF THE COMPANY ARE
STRONGLY ENCOURAGED TO READ SUCH PROXY STATEMENT, ACCOMPANYING
WHITE PROXY CARD AND ALL OTHER DOCUMENTS FILED WITH, OR FURNISHED
TO, THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
SHAREHOLDER MEETING. Shareholders will be able to obtain the
Company's proxy statement, any amendments or supplements to the
proxy statement and other documents filed by the Company with the
SEC at no charge at the SEC's website at www.sec.gov. Copies will
also be available at no charge at the Company's website at
https://www.southwestairlinesinvestorrelations.com/financials/sec-filings.
Participant Information
For participant information, see the Company's soliciting
material filed as "DEFA14A" with the SEC on August 30, 2024 and available here.
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SOURCE Southwest Airlines Co.