BY ALISON SIDER, WSJ, thanks to Frank Wright
Southwest Airlines struck a truce with Elliott Investment Management, giving the activist a significant presence on its board but not the majority control the hedge fund initially sought. The settlement announced Thursday deflects a potentially rancorous proxy fight and ends the acrimonious four-month battle over whether Southwest’s management is capable of pulling the airline out of a funk.
Elliott got much of what it wanted. Five of its proposed directors will be added to the budget-airline pioneer’s board, including former Virgin America boss David Cush and former WestJet Chief Executive Gregg Saretsky. Former Chevron finance chief Pierre Breber will join the board, which will be reduced to 13 members next year.
Southwest Executive Chairman Gary Kelly, who served as the airline’s CEO for nearly two decades, will leave the board earlier than planned and hold the title chairman emeritus. A new independent chair will be named later, Elliott and Southwest said. The airline managed to defend keeping CEO Bob Jordan, whom Elliott had initially looked to push out. Jordan – for now – has a chance to see through a turnaround plan the airline articulated to investors last month.
“The main thing is, it is a portion of the board. It is not control,” Jordan said on a conference call. He said he interviewed each of the new board members, and that their breadth of experience will be a welcome addition to the company. Still, the large contingent of Elliott-backed directors looking over his shoulder means that Jordan and other executives likely have little room for error. The reconstituted board will include four former top airline executives apart from Jordan.
Most activist campaigns do not result in board control changes but even from a minority position – or often with no board seats – Elliott has proven able to pressure companies to make significant changes. Several companies in which Elliott has recently built positions have ultimately replaced their CEOs, including the big wireless-tower owner Crown Castle, NRG Energy and Goodyear Tire & Rubber.
The settlement comes less than two weeks after Elliott called for a special shareholder meeting Dec. 10 for investors to vote on its director slate. Elliott said Thursday it withdrew that request, adding that the board overhaul puts the company in a strong position. Shares in Southwest fell 5.6% in regular trading, as the company posted better-than expected profit and sales in the latest quarter, but noted additional progress was needed to cut costs.
Other activism campaigns at airlines have ended with more modest tweaks to corporate boards. Billionaire investor Carl Icahn quickly struck a deal for two JetBlue Airways board seats after unveiling a nearly 10% stake in the airline earlier this year. United in 2016 added two directors backed by dissident investors and a third both sides agreed on.
Elliott argued that Southwest, which started flying in the 1970s, was due for a shake-up. It said the carrier had refused to jettison old business strategies and missed out as rivals seized opportunities to bolster revenue as more travelers shelled out for premium perks. The carrier’s share price had plunged by more than half in the three years before the activist announced its $2 billion stake in June. Elliott now owns about 10% of Southwest’s shares.
Southwest plans to ditch its more than 50-year-old open seating model and will introduce premium sections of its planes with extra legroom. The plans, which the airline has said were in the works before Elliott began its challenge, also involve culling unprofitable routes, making its operations more efficient, selling planes and buying back $2.5 billion of its shares. The airline said it would stick to its policy of offering passengers two free checked bags. Analysts and industry observers have credited the agitation with igniting a fire under the often slow-moving airline. Some investors were also wary of backing a leadership change without knowing who might replace Jordan as CEO.
Southwest said that some of its efforts are starting to pay off. The airline said its quarterly financial results out Thursday were helped by higher prices and other efforts to boost the top line. Stiff competition on domestic routes has weighed on U.S. airlines in recent months, as budget carriers have resorted to price cuts to fill a glut of seats. Southwest and others have since throttled their growth plans, helping to bolster fares. The airline also said that travel demand remained healthy and that bookings for the holiday season were strong.
Before Thursday, Southwest had already started reshaping its corporate board as pressure from Elliott mounted. The airline previously added two respected industry veterans: Bob Fornaro, who served as CEO of AirTran before Southwest bought the airline in 2011 and also of Spirit Airlines; and Rakesh Gangwal, who held executive roles at U.S. airlines before founding IndiGo in India.
Gangwal backed Southwest’s management with a stock purchase valued at over $100 million, according to a securities filing this month. In a statement Thursday, Gangwal said the board would work with Jordan to preserve the company’s business model and culture while boosting its financial performance. Even as rhetoric heated up in recent weeks, the two sides had continued to trade proposals to restart settlement talks. On Oct. 9, Kelly asked to interview Elliott’s nominees. Elliott said it was prepared to discuss “meaningful board changes” in a potential settlement.
Ther new board members are:
Pierre Breber, the former Vice President and Chief Financial Officer of Chevron, brings significant financial expertise to the Board. Breber built a more than 30-year career at Chevron, starting as a financial analyst in 1989. During his tenure as CFO, Breber boosted investor confidence in energy and maintained Chevron’s sector-leading valuation and reputation by instilling capital discipline and championing a lower carbon strategy. Breber previously held several senior executive roles in finance and operations across Chevron’s global business units. Breber is a board member of PACCAR and is nominated as a new director for election with Clorox. Breber is a member of the Johnson Advisory Council at Cornell University and previously was chair of the Board of Directors of the United Way Bay Area and a Board member of the Thurgood Marshall College Fund. Breber earned a bachelor’s and a master’s degree in mechanical engineering from UC Berkeley, and an MBA from Cornell University.
David Cush has over 30 years of aviation experience, most recently serving as CEO of Virgin America. Joining just after the airline’s inaugural flight, he led Virgin America through the turmoil of the financial crisis and a subsequent period of rapid growth. Cush led Virgin America to realize its first annual profit, oversaw its successful initial public offering and ultimately negotiated the airline’s acquisition by Alaska Airlines. Prior to joining Virgin America, Cush held a number of positions at American Airlines during his 20 years with the airlines, including Senior Vice President of Global Sales and Distribution, Vice President of International Planning and Alliances and various other roles in Finance and Operations. Cush earned a Bachelor of Science in Psychology, and Bachelor of Fine Arts in Broadcast/Film and an MBA, all from Southern Methodist University.
Sarah Feinberg, former Administrator at the Federal Railroad Administration, Chief of Staff to the U.S. Secretary of Transportation and Interim President and CEO of the New York City Transit Authority, brings a wealth of experience as a transportation and safety regulator, which will help support Southwest’s commitment to ensuring the safety of the Company’s Employees and Customers. As Administrator at the Federal Railroad Administration, the sole safety regulator for the US passenger and freight rail system, Feinberg focused on enhancing the safety of the rail network after a series of accidents. During her tenure, Feinberg also aggressively enforced safety regulations and oversaw billions of dollars in investments to improve the safety of the rail system. As Chief of Staff to the U.S. Secretary of Transportation, Feinberg oversaw and advised on a broad range of initiatives across the aviation and broader transportation sector. As President of New York City Transit, Feinberg led a 50k employee workforce and the largest transit system in North America. Feinberg earned a bachelor’s degree in American government and politics from Washington and Lee University.
Dave Grissen, former Group President of Marriott International, is a seasoned hospitality executive with extensive experience leading a global franchise and growing a storied brand. As Group President, Grissen led all functions for Marriott’s brands in the Americas and for the Ritz Carlton and EDITION brands globally, including strategy, revenue management, sales and marketing, operations, food and beverage, technology, development and human resources. Grissen managed hotels representing approximately two-thirds of Marriott’s fee revenue, a workforce of 160,000 people and a successful growth strategy that resulted in Marriott’s Americas organization nearly doubling from 2,928 hotels to 5,640 hotels plus 1,800 pipeline hotels under his leadership. Grissen also currently serves as the Chairman of Regis and is on the Board of Chatham Lodging Trust. He holds a bachelor’s degree in business administration from Michigan State University and a master’s degree in finance from Loyola University in Chicago.
Gregg Saretsky, former CEO of WestJet, brings 40 years of aviation leadership experience and industry knowledge. At WestJet, Saretsky led the evolution of the airline from providing a one-dimensional product offering to having a modern commercial strategy, generating a total shareholder return of more than 100% during his eight-year tenure as CEO. Prior to WestJet, Saretsky served in a number of senior-level commercial and operational roles at Alaska Airlines, including Executive Vice President of Flight Operations & Marketing. Saretsky is also a current director of IndiGo and RECARO Aircraft Seating. He earned a bachelor’s degree in microbiology and immunology and an MBA from The University of British Columbia.
Patricia Watson has served as Chief Information and Technology Officer at NCR Atleos since October 2023. She is an experienced technology executive with a track record of developing modernization plans and overseeing IT transformations at large, complex financial services and transportation/logistics companies. Over the course of her career, she has also served as Executive Vice President and Chief Information Officer of NCR, Total Systems Services and The Brink’s Company, the President of Cloud Collaboration at Intrado and in various senior technology roles at Bank of America. Watson is a Director at Rockwell Automation, and previously served on the Boards of USAA Federal Savings Bank and Texas Capital Bancshares. Prior to her corporate career, Watson spent ten years in the United States Air Force as executive staff officer, flight commander, and director of operations. She holds a bachelor’s degree in mathematics from St. Mary’s College in Notre Dame, Indiana, and an MBA from the University of Dayton, and is the spouse of a captain who has flown for Southwest for 24 years.