The other shoe partially fell at Southwest in a corporate cave-in

That convoluted headline riffs on my post from last week about the pressure Southwest Airlines faces from Paul Singer and his vulture capitalism hedge fund Elliott Investment Management.

After the threat of a special shareholders meeting when Elliott crossed the 10 percent mark on Southwest stock ownership, the company semi-caved.

It agreed that six board members would leave in November. In addition, next year, current chairman and former CEO Gary Kelly, who took over for the iconic founder Herb Kelleher, will retire or resign. However, current CEO Robert Jordan will stay.

Singer's response? 

"Not good enough," so to speak:

“We are pleased that the board is beginning to recognize the degree of change that will be required at Southwest, and we hope to engage with the remaining directors to align on the further necessary changes,” the hedge fund said. Elliott said its nominees are “the right people to steady the board and chart a new course for the airline.”

Problem is that I think Southwest is right in that Elliott/Singer have not specified all their concerns before now.

Problem two is that Southworst agreed to accept three potential Elliott nominees for four board slots, and these people come from places like Spirit and Ryanair. That's detailed at my top link, my post from last week.

That said, Forbes thinks this bought off a proxy fight:

“My initial reaction was that these are significant, these are substantial, these are transformational,” says Keith Gottfried, CEO of Gottfried Shareholder Advisory, a shareholder activism defense firm. “It certainly takes away the argument that this board is not willing to to make changes.” ...

In bending to many of Elliott’s key demands, Southwest will likely avoid the “or else” option, an expensive proxy fight that would have likely cost tens of millions of dollars, Gottfried says. “The scale of this change in response to an activist is very atypical, and I think it really lowers the probability that we're going to see a proxy contest.”

Could be so. Gottfried goes on to say that by near the end of this month, per a calendar-circling date mentioned below, he expects Southwest and Elliott to have some written agreement. OTOH, per who Paul Singer is, in my top post, I woudn't count on that until there's a document.

That all said, you have to "loovveeee" Southworst's PR machine, calling this "comprehensive board refreshment." That sounds like calling a concentration camp or the gulag a "re-education camp."

That said, the last part of the statement, which is signed off on by Kelly, indicates the sellout is there. It's under "Issue 5: New Business Plan." This:

I am confident the meaningful changes made to our route network; revenue management techniques; and marketing, merchandising and distribution methods – as well as significant new operational initiatives – collectively will transform the airline and usher in the next era of Customer loyalty and strong financial performance. All of these changes reflect significant discussion and debate in the Boardroom and are informed by direct feedback from Shareholders over many months, including on pertinent issues such as the magnitude and pace of our growth, our ability to forecast accurately, and how to continuously innovate in ways that are accretive financially and to the unique Southwest brand.

I am hopeful that all our Shareholders will be as enthused as I am over the direction our leadership and Board are taking us, which you will hear a lot more about at our Investor Day on September 26.

Boldface added by me, is the biggie.

Note the semicolons SHOULD (if Southwest's corporate lawyers are doing their jobs) mean that the "meaningful changes made" applies ONLY to the route management clause, not all clauses or phrases. In other words, "significant new operational initiatives" would include the upcoming end of the cattle call seating, already discussed by me, and additional things — like ending bags fly free, charging for snacks like Ryanair, etc. Or, per Southwest's Snowmaggedon last December, will it face a point to further modify its semi-direct system more toward a hub-and-spoke? (It's a legend that Southwest has a truly and fully direct flights system.)

I'm OK with the change in seating as long as it doesn't add pricing. Per the "it agreed" link, I'd be OK with red-eye flights if they're at the current Southwest's version of red-eye prices.

Yeah, Gary, a lot of passengers are going to be eyeballing you on Sept. 26 as well.

Also of interest? This spring, Southwest was rumored to be "out hunting" in the acquisitions world. Is that still the case? Sun Country, per the link, is a JetBlue etc type of airline in that they charge for everything. BUT? They fly only 737s, a definite boost to Southwest. And, Southwest could run it as the equivalent of American Eagle, United Express, etc., integrating it but keeping routes and operations separate. OTOH, per this Reddit, Sun Country sucks as much as other "value" airlines. Yelp and Trip Advisor agree.