Southwest Airlines, a major Dallas-based air carrier, has announced significant changes to its board of directors in response to pressure from activist investor Elliott Investment Management. The move comes as Elliott, which acquired a $1.9 billion stake in the company in June, called for a shake-up in executive ranks, board composition, and strategic direction.

Executive chairman and former CEO Gary Kelly has decided not to seek reelection, and six board members will be stepping down later this year. The decision came as Southwest leaders, including Kelly, met with representatives from Elliott Investment Management on Monday.

Southwest CEO Bob Jordan, who had also been pressured by Elliott to step aside, will remain in his position. However, the airline has already made significant changes to some of its distinguishing features, such as introducing assigned seating and red-eye flights. Conor Cunningham of Melius Research stated that these product changes, including seat assignments and premium options, could create a $1.5 to $1.8 billion opportunity for the company.

Industry experts have weighed in on the leadership changes at Southwest. Bill Swelbar, chief industry analyst at The Swelbar-Zhong Consultancy, believes that either Kelly or Jordan needed to step down, and it was easier for Kelly to make the decision. Swelbar emphasized the need for the airline to let go of its storied past and recognize the growth it has undergone, suggesting that there is much work to be done.

In a letter to shareholders, Kelly acknowledged the importance of board refreshment and corporate governance changes. He expressed the need for change within the company, stating that it was time to not just stir things up, but to fully shake them. Kelly also emphasized the importance of bringing in new talent both in leadership positions and on the board.

According to a regulatory filing on Tuesday, Kelly will not stand for re-election at Southwest's 2025 annual meeting of shareholders. Furthermore, six board candidates, including David Biegler, Veronica Biggins, Roy Blunt, William Cunningham, Thomas Gilligan, and Jill Soltau, will retire following a quarterly board meeting on November 21. This will reduce the number of directors on the board to 13 after the November meeting and 12 after the 2025 annual meeting.

Southwest has also announced corporate governance changes, such as the elimination of the executive committee structure. The airline has established a new finance committee that will oversee financial, operational, and business plans, major transactions, and capital structure, among other responsibilities. The finance committee will be reconstituted to include both new and incumbent directors.

To supplement board oversight, Southwest has enlisted the services of outside experts and consultants, including former CEO of Spirit Airlines and AirTran Airways, Robert Fornaro. The airline is taking these steps to address Elliott's demands for change within the company.

Looking ahead, Southwest's next investor day on September 26 is expected to reveal further details regarding leadership changes and new strategies. The company aims to lay out and quantify its initiatives and address concerns about revenue loss as it makes changes to long-standing policies.

The Southwest Airlines board shake-up signifies a pivotal moment for the company as it navigates the demands of an activist investor and strives to adapt to an evolving industry landscape.