DALLAS - Southwest Airlines Co. (NYSE: NYSE:LUV) announced a significant transformation of its board and corporate governance in response to shareholder feedback and ongoing discussions with Elliott Investment Management L.P. The airline disclosed its plans for board refreshment, which includes the retirement of six directors in November and the appointment of four new independent directors, potentially including candidates proposed by Elliott.
Executive Chairman Gary Kelly will retire immediately after the 2025 Annual Meeting. The directors set to retire are David Biegler, Veronica Biggins, Senator Roy Blunt, Dr. William Cunningham, Dr. Thomas Gilligan, and Jill Soltau. This move aims to reduce the board size to 13 members post-November and to 12 following Kelly's retirement in 2025, significantly lowering the average tenure from 7.3 years to approximately 2.5 years and ensuring that 75% of the board will have three years or less tenure by the 2025 Annual Meeting.
The board also plans to establish a new Finance Committee tasked with overseeing financial and strategic planning, and will appoint new committee chairs and a lead independent director. These changes are part of a broader strategy to enhance shareholder value and modernize the airline, as outlined in a letter to shareholders from Kelly.
The airline's board reiterated its support for CEO Bob Jordan, highlighting his leadership during the airline's strategic evolution and his role in driving transformational initiatives. The board expressed confidence in Jordan's ability to lead the company through its largest transformation to date and emphasized the risk of a leadership change during this critical period.
The airline is engaged in a constructive dialogue with Elliott Investment Management and is working towards a collaborative resolution. Financial advisors BofA Securities and Morgan Stanley (NYSE:MS) & Co. LLC, along with legal advisors Vinson & Elkins L.L.P. and Kirkland & Ellis LLP, are assisting Southwest Airlines in this process.
The information presented is based on a press release statement from Southwest Airlines.
In other recent news, Southwest Airlines has reached a tentative labor agreement with its Flight Simulator Technicians, represented by the International Brotherhood of Teamsters (IBT) Local 19. The deal, still subject to a vote by the technicians, is part of Southwest's broader labor relations efforts. The airline has also committed to achieving net zero carbon emissions by 2050, setting near-term objectives and outlining a strategy to meet these environmental commitments.
In addition to labor negotiations, Southwest is under investigation by the U.S. Department of Transportation over the fairness of its loyalty program. The probe aims to protect consumers from potentially unfair or deceptive practices and maintain a competitive market. This comes as Evercore ISI upgraded Southwest's stock to Outperform from In Line, citing the airline's shift towards capacity discipline and new revenue initiatives.
Elliott Investment Management recently acquired a 10% stake in Southwest, leading to potential changes in the company's leadership. The hedge fund has proposed nominating 10 directors to the airline's board and called for the removal of Southwest's CEO, Robert Jordan, and Executive Chairman, Gary Kelly. Amid these developments, Southwest reported a slight second-quarter earnings per share beat at $0.58, a 13% increase from the previous quarter. However, Bernstein SocGen Group has adjusted its price target for Southwest's shares, indicating an anticipated third-quarter loss due to declining main cabin revenue. These are the latest developments in the world of Southwest Airlines.
InvestingPro Insights
As Southwest Airlines (NYSE: LUV) embarks on a significant transformation, investors are closely monitoring the company's financial health and market performance. According to real-time data from InvestingPro, Southwest Airlines holds a market capitalization of $17.81 billion, reflecting its substantial presence in the airline industry. Despite facing challenges, the company has demonstrated resilience with a revenue growth of 7.54% over the last twelve months as of Q2 2024, indicating a steady demand for its services. Additionally, Southwest has achieved a gross profit of $5.869 billion, with a gross profit margin of 21.71% during the same period, underscoring its ability to maintain profitability amidst industry fluctuations.
InvestingPro Tips highlight that Southwest Airlines is trading at a high earnings multiple with a P/E ratio of 225.88, suggesting that investors may expect future growth and profitability. However, it's important to note that analysts have revised their earnings expectations downwards for the upcoming period. On a positive note, Southwest is a prominent player in the Passenger Airlines industry, and analysts predict the company will remain profitable this year, which is consistent with its performance over the last twelve months.
For those interested in a deeper analysis, InvestingPro offers additional insights and tips on Southwest Airlines' financials and projections. Currently, there are 8 more InvestingPro Tips available for Southwest Airlines at https://www.investing.com/pro/LUV, providing a comprehensive understanding of the company's financial position and future prospects.
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