Southwest settles proxy fight with hedge fund as Q3 profit shrinks. American loses money

DALLAS -- DALLAS (AP) — Southwest Airlines reached a colony pinch an activistic investor by agreeing to overhaul its board, ending — astatine slightest for now — a monthslong conflict pinch Elliott Investment Management, which is pressuring nan airline to boost profits and nan banal price.

Chairman Gary Kelly and six existent committee members will depart Nov. 1 and beryllium replaced by 5 Elliott-backed candidates and a erstwhile Chevron executive, Southwest said Thursday.

Elliott, nan hedge money led by billionaire financier Paul Singer, achieved astir of nan demands it has made since June, but it settled for little than mostly power of nan Southwest board. And it did not win successful 1 of its goals, ousting CEO Robert Jordan.

A antecedently scheduled special shareholder meeting to elite board successful December will beryllium canceled.

Southwest announced nan shakeup arsenic it reported that its third-quarter profit fell by astir two-thirds, to $67 million, connected higher costs for labor and different expenses.

American Airlines posted a nonaccomplishment of third-quarter nonaccomplishment of $149 cardinal Thursday, weighed down by paying bonuses to formation attendants who ratified a caller labour contract.

The net reports were overshadowed by nan play betwixt Southwest and Elliott, which astatine 1 constituent campaigned for 10 seats connected nan Southwest board. That would person been capable to occurrence Jordan, nan embattled CEO.

The colony saves Jordan's occupation but leaves him connected nan basking spot to amended nan airline's financial performance.

Jordan, who had taken an progressively combative reside against Elliott lately, sounded conciliatory connected Thursday.

The committee members joining from Elliott, including erstwhile Virgin America CEO David Cush and erstwhile WestJet CEO Gregg Saretsky, “bring unsocial and different hose acquisition to our committee (that) will beryllium adjuvant arsenic we execute our scheme and arsenic we look to nan longer future," Jordan said connected CNBC.

Jordan said he welcomed a committee that would “hold guidance accountable, clasp maine accountable to nutrient nan results” that Southwest leaders promised astatine an investor time past month.

Southwest plans to summation revenue by converting astir one-third of its seats to premium ones pinch other legroom. It will besides begin assigning seats — ending nan longtime believe of letting passengers prime their ain seats aft boarding nan plane. And it is pursuing partnerships pinch world airlines, starting pinch Icelandair, to connection 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 finance successful nan airline, mixed pinch caller committee members, will put nan institution successful position to execute amended “and measure further changes to create semipermanent shareholder value.”

The third-quarter results from Southwest and American reflected aggravated title connected home routes, peculiarly from fund carriers, that created a glut of seats and forced airlines to trim prices connected galore economy-class tickets. Airline manufacture officials opportunity that has begun to alteration arsenic airlines trim their schedules for nan remainder of nan year.

Southwest said it planned to alert 4% little successful nan 4th fourth than it did successful nan aforesaid 4th past year. Spirit Airlines has made moreover bigger cuts.

Both American and Southwest said that excluding typical items, their results hit Wall Street expectations.

Excluding one-time items, mostly a $516 cardinal complaint tied to a caller statement pinch national formation attendants, American it would person earned 30 cents per share. Analysts were expecting adjusted net of 16 cents per share, according to a FactSet survey.

Revenue astatine Fort Worth, Texas-based American roseate 1%, to $13.65 billion, astir $150 cardinal much than analysts expected.

Dallas-based Southwest said third-quarter profit, excluding typical items, useful retired to 15 cents per share, which hit a forecast of six cents per stock among analysts surveyed by FactSet.

Revenue roseate 5%, to $6.87 billion, $100 cardinal much than nan analysts expected.

However, labour costs roseate much than 12%, reflecting caller new contracts for pilots, formation attendants and different employees.

Southwest besides said it would velocity up repurchase of $250 cardinal worthy of its stock, nether a $2.5 cardinal share-buyback scheme it announced past month.

Southwest Airlines Co. shares fell 3% while American Airlines Group Inc. shares were level successful midday trading Thursday.