In a significant shakeup, Southwest Airlines announced on Tuesday that it will revamp its board of directors, with longtime Chairman Gary Kelly set to retire next year. This move comes amidst pressure from hedge fund Elliott Investment Management, which holds a 10% stake in the airline and has been advocating for changes to improve Southwest's financial performance and stock price.

Following a meeting between Southwest and Elliott on Monday, the airline revealed in SEC filings and a news release that six current directors will be leaving the board in November. Additionally, Southwest plans to appoint four new directors, potentially including candidates proposed by Elliott.

Southwest leadership plans to unveil an updated business plan later this month during the company's investor day in Dallas. These changes come alongside other significant developments for the airline, such as the discontinuation of its open seating policy and the addition of redeye flights to its schedule.

Elliott Investment Management blames Southwest's management for a significant drop in the airline's stock price over the past three years. The hedge fund is seeking to replace CEO Jordan, who assumed the role earlier this year, as well as former CEO Gary Kelly. However, Southwest confirmed that Kelly will retire after the company's annual meeting in the upcoming year, while Jordan will continue in his current position.

Elliott argues that Southwest's leadership has failed to adapt to changing customer preferences and neglected to modernize the airline's technology. This alleged lack of progress, according to Elliott, contributed to a series of massive flight cancellations in December 2022, costing the airline over $1 billion.

While Southwest has made efforts to improve its operations, boasting a cancellation rate slightly lower than the industry average and outperforming rivals United, American, and Delta since the beginning of 2023, the airline has faced its share of challenges this year. Southwest planes have been involved in troubling incidents, including a flight that nearly crashed into the Pacific Ocean, prompting increased oversight from the Federal Aviation Administration.

Once a profit machine for five decades, Southwest Airlines faced its first full-year loss due to the devastating impact of the pandemic in 2020. Since then, Southwest has remained more profitable than American Airlines but has lagged behind Delta Air Lines and United Airlines. While Southwest's operating margin for the previous 12 months was slightly negative through June, Delta boasted an operating margin of 10.3%, United at 8.8%, and American at 5.3%, based on FactSet data.

As Southwest Airlines undergoes significant changes in its leadership and business strategies, industry observers eagerly await further details on the airline's future direction during the upcoming investor day in Dallas.