Airline Pioneer Frank Lorenzo Says JetBlue-Spirit Deal Would Raise Costs. JetBlue Says Consumers Would Win.

According to one of the airline industry's best-known entrepreneurs, he doesn't think antitrust regulators will approve the merger.

Frank Lorenzo, former CEO and controlling shareholder of Continental Airlines, said in an interview that the Justice Department may consider what it does to Spirit as a low-cost carrier. The history of a higher cost airline merging with a lower cost company is not good.

Lorenzo said that Pan Am was forced to raise National's labor costs to its own higher level because of union opposition. It's likely thatJetBlue has the same union issue.

To be fair, in comparing the cost structures, one must also consider Spirit's seat density and the product itself, as well as the cost of extras that may be included in JetBlue costs and not in Spirit's.

There is an apparent opposition to mergers by the Biden administration. The stock market seems to agree with his opinion because of the spread between the offer price of both airlines.

The airline disagrees with Lorenzo's points. The airline said that a merged airline would spread costs. Glenn Pomerantz, a partner in the Los Angeles office of Munger, Tolles & Olson and a veteran antitrust attorney, said in an interview that an acquisition of Spirit by JetBlue would lead to lower fares.

Pan Am's 1980 acquisition of National is thought to have been unsuccessful because it raised costs for the combined carrier, but also because it did not adequately address Pan Am's lack of domestic capacity and clashing cultures.

Lorenzo ran Continental after it merged with his Texas International Airlines. The Houston and Newark hub were built under his leadership. After the deregulation of the industry in 1978, he sought to reduce costs but was opposed by airline labor unions. Lorenzo is the leader of Savoy Capital. It doesn't own shares in any of the airlines.

The two companies announced their plans to combine. The value of the deal was $25.83. In April, the airline tried to bid for the company. The airline made a hostile tender offer last week. Thursday was the last day of trading for Spirit shares.

The antitrust division of the justice department would review any future merger proposals.

Lorenzo thinks that it makes sense to walk in the park. The new Justice Department is against mergers. I have a feeling that in the end, they will realize that this is two low-cost carriers strengthening themselves by merger.

The current administration has made it clear that any airline merger may face challenges. No one can Predict the outcome of that challenge. The Department of Justice recognized the "JetBlue effect" in its Northeast Alliance complaint.

Pomerantz said thatJetBlue has a good argument. A pro-competitive benefit would be delivered byJetBlue's acquisition of Spirit. Routes would have lower fares as a result of that.

On an April 6 call with analysts and reporters, the CEO of JetBlue addressed the cost impact of the merger.

There is an order book of very high-performing, flexible, fuel- efficient airplanes. There is a lot of benefits to scaling around a single fleet type. He said that a combined carrier would benefit from a tight labor market.

The tender offer brought Lorenzo back to his childhood. Texas Air made a tender offer for half of Continental's shares. Continental was in the process of merging with Western Airlines and was waiting for shareholder approval.

Continental was seen as a good fit by Lorenzo and his team. The lowered price of Continental's stock and shareholders' decision to accept the Texas offer was a result of Wall Street's dim view of the Continental-Western second try at a merger.

It's possible to see Texas Air in 1981 as a successor to JetBlue, making a tender offer that upsets an ongoing merger effort. Texas Air was the smallest of the original certificated carriers and the CAB quickly approved the deal.

The Civil Aviation Board turned down the merger of Continental and Western in 1979. The street didn't like it. The deal didn't really offer anything since Western and Continental were unprofitable and located near each other. It was expected that it would be turned down by shareholders.

Lorenzo said that they had submitted a proposal to break up the merger. It was the only formal cash tender offer in the history of the airlines.