During a five-month fight with Southwest, Elliott Investment Management was able to force a substantial reshaping of the airline's board.
But that seems to be the extent of what the activist firm achieved from the proxy battle it abandoned late last month. Elliott, which owns 11% of Southwest, did not gain control of the board, and the airline made no major strategic shifts that it wasn't likely to have implemented had Elliott not become involved.
"The company seems to have doubled down on what they were talking about before Elliott," said analyst Bob Mann, of RW Mann and Co. "They may have accelerated it. But I don't think it's any different from what they had in mind."
Elliott also failed in its effort to force the ouster of CEO Bob Jordan, though the reconstituted board likely means Jordan can expect careful oversight as the carrier executes on a three-year plan to return to historically strong financial metrics.
"I don't think he's out of the woods," Brad Beakley, CEO of the travel industry consultancy Hospitio, said of Jordan. "He's got some reprieve, but he's got to show that the things he's promised they can execute on."
Under the Oct. 23 deal that put an end to the proxy challenge, Southwest agreed to appoint five of the people who had been on Elliott's proxy slate of eight board members. In addition, Southwest's longtime board chairman Gary Kelly agreed to step down on Nov. 1, six months earlier than the May retirement that he had already announced amid pressure from Elliott.
Those changes, along with the previously announced resignation of six other board members and the addition of a sixth new board member selected by Southwest management, have left the airline with a reconstituted 13-person board, a majority of whom have been chosen by Southwest's standing leadership.
In agreeing to the arrangement, Elliott partner John Pike and portfolio manager Bobby Xu said the new directors will enhance and revitalize the board and that the strategic changes Southwest had announced since Elliott entered the picture in June have positioned the company to improve its performance.
The most substantial of those changes are Southwest's plans to implement assigned seating and to retrofit cabins with extra-legroom seats, with the products coming online in the first half of 2026.
Though announced in July, those moves were widely anticipated after Jordan hinted about them during an April earnings call.
The remainder of the plan Southwest announced in late September, which it says will produce $4 billion in incremental revenue and a 10% profit margin by 2027, is also mostly comprised of initiatives the airline was already working toward before Elliott. They include network fine-tuning; increased fleet utilization through the launch of red-eye flights next February and via a series of steps geared toward reducing aircraft turn times; and steps to better balance staffing levels with the airline's curtailed growth plans.
Beakley described those changes as "milquetoast," adding that they should have been done five years ago, or maybe even a decade ago.
"It didn't seem like they were in a spot where I would have expected an organization like Elliott to back down just yet," he said.
Still, Elliott's success in reconstituting the Southwest board should be substantive, Mann said. When the hedge fund announced its Southwest stake, the carrier's board was bereft of people with airline experience outside of Southwest. Now, the board has four former CEOs of other airlines, including two who were on Elliott's slate and two that Southwest put in place as the proxy battle was taking shape. Plus, it has the five board members who don't owe their position to Jordan and the airline's standing leadership.
"It creates some tension on the board. There should be tension," Mann said. "There should be oversight. If I look at the industry as a whole, if you look at where failures occur, it's boards that don't understand the implication of proposals that are being presented by management."
Mann cited as an example American's discarded strategy geared toward driving bookings away from traditional corporate and travel agency channels and toward direct and NDC-enabled channels. The airline abandoned the strategy in May after just 13 months and said the failed strategy could result in $1.5 billion in lost revenue.
American's board, not unlike the boards of competitors United and Delta, is relatively light on aviation experience, with one former airline CEO and chairman Gregory Smith, a former Boeing executive, to go along with current American CEO Robert Isom.
Southwest's board, with its heavy makeup of airline executives, should be positioned to take a discerning view on strategies brought forward by management, Mann said.