Southwest settles proxy fight with insure pool as Q3 profits shrinks. American loses money

DALLAS — DALLAS (AP) — Southwest Airlines reached a settlement with an activist investor by agreeing to overhaul its board, ending — at least for now — a monthslong fight with Elliott resource Management, which is pressuring the airline to boost profits and the stake worth.

Chairman Gary Kelly and six current board members will depart Nov. 1 and be replaced by five Elliott-backed candidates and a former Chevron executive, Southwest said Thursday.

Elliott, the insure pool led by billionaire financier Paul Singer, achieved most of the demands it has made since June, but it settled for less than majority control of the Southwest board. And it did not achieve in one of its goals, ousting CEO Robert Jordan.

A previously scheduled special shareholder conference to elect directors in December will be canceled.

Southwest announced the shakeup as it reported that its third-quarter profits fell by nearly two-thirds, to $67 million, on higher costs for labor and other costs.

American Airlines posted a setback of third-quarter setback of $149 million Thursday, weighed down by paying bonuses to flight attendants who ratified a recent labor deal.

The profits reports were overshadowed by the drama between Southwest and Elliott, which at one point campaigned for 10 seats on the Southwest board. That would have been enough to fire Jordan, the embattled CEO.

The settlement saves Jordan’s job but leaves him on the warm seat to enhance the airline’s budgetary act.

Jordan, who had taken an increasingly combative tone against Elliott lately, sounded conciliatory on Thursday.

The board members joining from Elliott, including former Virgin America CEO David Cush and former WestJet CEO Gregg Saretsky, “bring distinctive and different airline encounter to our board (that) will be helpful as we execute our schedule and as we look to the longer upcoming,” Jordan said on CNBC.

Jordan said he welcomed a board that would “hold management accountable, hold me accountable to produce the results” that Southwest leaders promised at an investor day last month.

Southwest plans to boost turnover by converting nearly one-third of its seats to additional expense ones with extra legroom. It will also commence assigning seats — ending the longtime habit of letting passengers pick their own seats after boarding the plane. And it is pursuing partnerships with international airlines, starting with Icelandair, to propose destinations beyond North America and Central America.

Two officials from Elliott, John Pike and Bobby Xu, said changes that Southwest has announced since Elliott disclosed its resource in the airline, combined with recent board members, will put the business in position to perform better “and assess additional changes to make long-term shareholder worth.”

The third-quarter results from Southwest and American reflected intense competition on domestic routes, particularly from distribution carriers, that created a glut of seats and forced airlines to cut prices on many economy-class tickets. Airline industry officials declare that has begun to transformation as airlines reduce their schedules for the rest of the year.

Southwest said it planned to fly 4% less in the fourth quarter than it did in the same quarter last year. Spirit Airlines has made even bigger cuts.

Both American and Southwest said that excluding special items, their results beat Wall Street expectations.

Excluding one-period items, mostly a $516 million expense tied to a recent deal with union flight attendants, American it would have earned 30 cents per distribute. Analysts were expecting adjusted profits of 16 cents per distribute, according to a FactSet survey.

turnover at Fort Worth, Texas-based American rose 1%, to $13.65 billion, about $150 million more than analysts expected.

Dallas-based Southwest said third-quarter profits, excluding special items, works out to 15 cents per distribute, which beat a projection of six cents per distribute among analysts surveyed by FactSet.

turnover rose 5%, to $6.87 billion, $100 million more than the analysts expected.

However, labor costs rose more than 12%, reflecting recent recent contracts for pilots, flight attendants and other employees.

Southwest also said it would speed up repurchase of $250 million worth of its stake, under a $2.5 billion distribute-buyback schedule it announced last month.

Southwest Airlines Co. shares fell 3% while American Airlines throng Inc. shares were flat in midday buying and selling Thursday.