Southwest Chair Kelly to step down next year as activist Elliott pushes for changes at airline

Southwest Airlines said Tuesday that executive chairman and former CEO Gary Kelly will retire next year and announced a board shakeup, moves that come as the carrier faces pressure for changes by activist investor Elliott Investment Management.

"Now is the time for change. It's time to shake things up, not just stir them a bit," Kelly said in a letter to shareholders. "The wisdom comes in knowing what to change and what not to change."

Kelly, who has worked at Southwest for nearly four decades and has been chairman since the carrier's co-founder, Herb Kelleher, retired in 2008, announced he would step down hours after a meeting with Elliott, which has been calling for leadership changes at the Dallas-based carrier.

Elliott in June revealed a nearly $2 billion stake in Southwest, seeking to oust leadership, including CEO Bob Jordan, who has also spent nearly four decades at the carrier. The firm said Southwest has had "stunning underperformance" under their leadership.

On Tuesday, Kelly's statement said Southwest's board and leadership "unanimously support Bob Jordan as CEO."

Six of Southwest's board members will retire in November, and the company will appoint four new independent directors "in the near future, including due consideration of up to three of Elliott's candidates," Kelly said.

The activist investor crossed the 10% threshold needed to call a special meeting last week. Elliott did not immediately return a request for comment. Elliott has previously mounted campaigns at companies like AT&T, Salesforce and Texas Instruments, but it had never publicly pushed for change at an airline before.

Southwest has also brought in outside experts, including Bob Fornaro, former CEO of Spirit Airlines and AirTran, which Southwest acquired.

The carrier has struggled as it faces an oversupplied domestic U.S. market, higher costs and aircraft delivery delays from Boeing, its sole supplier.

Southwest for years resisted changes to its simple business model that changed the U.S. airline industry, and earned nearly unbroken decades of profits, which helped it build an investment-grade balance sheet.

But in July, it announced it would offer extra legroom on its aircraft and do away with its open seating policy, the biggest changes in its more than 50 years of flying. It also plans to over overnight, or "redeye" flights next year.

Southwest has an investor day scheduled for Sept. 26 in Dallas to expand on these and other initiatives.