One of the airline industry’s best-known entrepreneurs says he doubts that antitrust regulators will approve the proposed JetBlue-Spirit merger.
“In evaluating the proposed merger, the Justice Department may well consider what it does to Spirit as a low-cost carrier, raising its costs,” said Frank Lorenzo, former CEO and controlling shareholder of Continental Airlines, in an interview. “The history of a higher-cost airline merging with a lower-cost company is not great.
“All you have to do is look at Pan Am’s acquisition of National Airlines in 1979, where —largely because of union opposition — PanAm was forced to raise National’s labor costs to its own higher level,” Lorenzo said. “JetBlue would likely have the same union issue.”
“Of course, to be fair, in comparing the cost structures, one must also consider Spirit’s seat density and the product itself and the cost of extras that may be included in JetBlue costs and not in Spirit’s,” Lorenzo said.
The key barrier to a merger, Lorenzo said, is the Biden administration’s apparent opposition to mergers. The stock market apparently shares his opinion, given the spread between JetBlue’s offer price and where Spirit is trading.
JetBlue disputes Lorenzo’s points. The airline has said that a merged airline will spread costs across an expanded single fleet type A320 carrier. In an interview, Glenn Pomerantz, a partner in the Los Angeles office of Munger, Tolles & Olson and a veteran antitrust attorney, said, “A JetBlue acquisition of Spirit delivers a unique pro-competitive benefit” because JetBlue entry into a market leads to lower fares.
Pan Am’s 1980 acquisition of National is generally thought to have been unsuccessful not only because it raised costs for the combined carrier but also…