Southwest Airlines is entering a new era, whether its shareholders, customers and leaders like it or not.

The Dallas-based airline will no longer have its longstanding open-seating policy, adding new premium options in the cabin and creating nighttime flights.

Soon the company’s longest-serving CEO and current director Chairman Gary Kelly will not lead the board of directors.

On Tuesday, Southwest announced that Kelly would not seek re-election to his role on the board after the 2025 annual shareholders meeting. Kelly, along with Southwest CEO Bob Jordan, were pressured by activist investor Elliott Investment Management to leave the airline. Jordan will remain with the company, and Kelly said he supports Jordan’s leadership.

“It’s time to shake things up, not just stir them up,” Kelly wrote in a letter to shareholders announcing his departure. “The wisdom lies in knowing what to change and what not to change. We know that changes are needed in some of our historic business practices. We know that we must continually bring in new talent — in leadership and on the board.”

What’s changing at Southwest?

Southwest has a different vibe today than it did fifty years ago, when its roots were in Dallas.

According to the company, 80% of Southwest passengers and 86% of potential customers prefer an assigned seat. In August, Southwest took those statistics and changed its open-seating policy, the first step away from a tradition the airline had started with.

“Our team sees this as a strategic transformation of the company,” Jordan said on July 25 during the company’s second-quarter earnings call.

New seating configurations require approval from the Federal Aviation Administration, Jordan said. That could take several months. Southwest has a fleet of about 800 planes that will receive updates, including new seat designs and cabin interiors that were announced earlier this year. Jordan said the airline must finalize the design of the seating plan. Then comes the lengthy certification process.

The airline will also add premium, extended legroom rows to the cabin. Southwest expects about a third of seats in its fleet to have extended legroom, the same amount as competitors flying similar narrow-body aircraft.

Southwest also announced the addition of overnight flights. Flights will begin on Valentine’s Day with five initial nonstop routes: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.

“Continuing to evolve is at the heart of our success and we are moving with urgency to restore our industry-leading financial position while staying true to who we are,” Jordan said in a video message on Sept. 10. “As you know, we have plans to introduce assigned and premium seating and offer night flights. We will share more details at our investor day later this month.”

Southwest has struggled financially since the pandemic. The changes are expected to result in a profitable airline, which Elliott has pushed for to make money for shareholders.

However, Kelly, the company’s longest-serving leader who has seen the airline through many challenges, is leaving.

Kelly, 69, informed the company and the board on Sept. 9 that he plans to not seek re-election at Southwest’s 2025 annual shareholders meeting and to retire immediately thereafter. His retirement coincides with the departure of nearly half of Southwest’s 15-member board of directors, including David Biegler, Veronica Biggins, Roy Blunt, William Cunningham, Thomas Gilligan and Jill Soltau, who each resigned on Sept. 9, effective after the company’s scheduled Nov. 21 board meeting.

Sept. 9 was also the day that Southwest and Elliott met at Elliott’s New York office to discuss changes the investment firm has requested, which focus on three key questions: strengthening the board, upgrading leadership and conducting a business review. Kelly, who attended the meeting with two independent directors who were not named in his letter to shareholders, said in the letter that he believes the discussions were productive.

Jordan thanked Kelly for his time at Southwest in a Sept. 10 letter. During Kelly’s tenure, the company extended its streak to 47 years of profitability until the pandemic upended every hospitality business.

With seven directors now gone, Southwest will have 12 directors remaining after the 2025 annual meeting and Kelly’s retirement.

Questions still remain

Southwest customers have many unanswered questions about how these changes will impact them.

Some fear that the elimination of the open seating policy will not be the only change and that more changes will follow, such as the bag policy and the unique benefits that Southwest has developed throughout its history.

Meryl Evans, 54, a traveler who lives in Plano, said she always checks Southwest first when she flies. Evans was born deaf and finds traveling with the airline the easiest experience for her. However, she worries about not being able to choose her seat.

“It’s not about getting a front row seat,” Evans said in an email. “It’s about being close to the employees for everything that’s going on. I’m also concerned that they’re taking the LUV out of Southwest. The actions and strategy feel cold and corporate. I know it’s part of doing business and making a profit, but LUV is the soul of what makes Southwest, well, Southwest.”

Customers also want clarity on assigned seating. Southwest has said more information will be provided at the airline’s investor day on Sept. 26.

With Kelly and the six other board members leaving, there is a lot of uncertainty about who will come next. Elliott has named 10 candidates it believes have the experience to lead Southwest to profitability.

The airline said it will fill four vacant positions and consider up to three of the 10 candidates Elliott nominated in August.

Southwest’s board of directors can hold its executives accountable, an important part of keeping the airline operating.

Rob Britton is an associate professor at Georgetown University’s McDonough School of Business and spent 25 years at American Airlines in Fort Worth.

“I’m not sure the new board members will make much of a difference, but Southwest absolutely has to commit to doing some things differently and some things better,” Britton said.

The hot seat

Which begs the question: what will happen to Jordan?

“The changes to the board and corporate governance announced today will reinforce our focus on returning to the high levels of financial performance that we – and our shareholders – expect,” Jordan said in a video message.

Many analysts have indicated that there is no better time than now when it comes to the need for change at Southwest.

Brett Snyder, who writes a blog about the airline industry Cranky Flier said investors might like the changes Elliott is proposing, but if the changes don’t pay off, all eyes will turn to Jordan.

“Ultimately it’s, ‘Let’s see where this goes,’ and if the top line performance doesn’t improve quickly, then he absolutely could be in trouble,” Snyder said.

Andrew Watterson is another Southwest executive who will be held accountable if nothing changes, he said.

Watterson, Southwest’s chief operating officer, defended the airline when its business collapsed during the 2022 holiday season. He stood before a U.S. Senate committee and answered questions from lawmakers about what went wrong and how Southwest would make changes.

“They’re both the ones who have to think, ‘We have to do this quickly. We have to do it right. We have to show results quickly so that people think we’re the right people to do this,'” he said.

Immediately following the departure announcements on September 10, Elliott issued a brief statement calling the departure times “unprecedented.”

“The need for thoughtful, intentional change at Southwest remains urgent, and we believe the highly qualified nominees we have put forward are the right people to stabilize the board and chart a new course for the airline,” Elliott wrote.

Keith Gottfried, managing member of Gottfried Shareholder Advisory, called the response “interesting.”

“The interesting thing about Elliott’s answer yesterday was that it was short and it didn’t mention Bob Jordan,” he said.

What does the future hold?

Following the changes in management, there is more to come from the airline. Board vacancies are coming soon and an investor day is planned for the end of the month at Southwest’s Dallas headquarters.

Southwest can appoint new directors, but there are other ways to fill board vacancies. Gottfried pointed to two options: a settlement agreement can be negotiated or a proxy contest can be initiated.

Under a settlement or partnership agreement, he explained, Southwest could tell Elliott that it likes up to three of the candidates Elliott suggested and wants to interview and hire them. Southwest has already said it will consider some of Elliott’s candidates.

In a proxy contest, Elliott, which owns 10% of the common stock in Southwest, could call a special shareholders meeting and potentially fire the entire board. This would require support from more shareholders. However, Gottfried explained that a special shareholders meeting likely wouldn’t happen until 2025 due to the scheduling involved.

There’s more to come for Southwest, whether it’s leadership or operational changes. Company executives believe the airline is headed in the right direction.

“Southwest has a great plan,” Jordan said.

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