There will always be people that criticize Frank Lorenzo, and people that praise him, but the truth is, his actual performance was somewhere in the middle.
Similar to the airline mavericks running the major carriers prior to deregulation, Frank Lorenzo loved aviation, however unlike the airline leaders prior to deregulation, Frank Lorenzo was a shrewd businessman. What he realized very early was that the airline unions, up to deregulation, were able to command high wages because the Civil Aeronautics Board would simply raise ticket fares to cover it. The industry was floundering during the 70's due to the prolonged recession and rising fuel prices. Therefore it was decided to deregulate the industry to allow the airlines to compete in a free market. The thinking was that the strong and innovative carriers would survive, and ticket prices would fall leading to higher consumer demand. Frank Lorenzo realized that Texas International had to get big very fast in order to compete; therefore he moved first to acquire National, which resulted in a bidding war with Pan Am. Pan Am won the bid but paid way too much for it. This allowed Frank Lorenzo to build up enough cash and liquidity to acquire Continental, and airline much bigger than even National. Of course he made many promises that he didn't keep, including moving the Continental HQ
from the LA
area to Houston. He received a lot of criticism for that decision, but as we have seen over the years, airlines make all sorts of promises they have no intention of actually following through with in order to get what they want. Also, Frank Lorenzo, realizing that the country was still in a recession with many people out of work, could find people willing to be pilots, mechanics, flight attendants, and ticket agents for much less than the unionized employees at Continental were being paid. Although Frank Lorenzo took a more draconian approach through bankruptcy and union busting, over the next few years, almost all the major airlines employee's had to take severe wage and benefit cuts. They just instead had to endure it little by little with a 3% cut for 12 months with the promise of a snap-up afterward only to be told they need to take even more wage cuts instead. American Airlines was actually one of the few carriers that avoided having to impose wage cuts. Like many major airlines prior to deregulation, AA
was rather poorly positioned, lacking a solid logical route network and an old fleet that included many 707’s. Their president, Bob Crandall, saw many of the same things that Frank Lorenzo did. However unlike Frank, he was able to grow American from within, without the need for wage cuts, by getting AA
’s unions to agree to the B-Scale (a new wage and benefits package for all new AA
employee's with the intention of those employee's never reaching pay parity with their more senior counter parts). Because of the B-Scale, AA
was able to buy 100's of new planes and greatly expand their network while greatly mitigating employee backlash and outward distain which was so evident at Continental.
I guess the things that you can't really fault Lorenzo for are the lowered wages and decreased benefits for his employee's, or for his pursuit to increase Continental’s critical mass. However he is not blameless, he can be faulted for many other things. He tried to mash 4 airlines together on a single day without much pre-planning leading to major service disruptions that took months to sort out. Also he didn't see much use in the power of marketing and yield management, something that AA
and United did early on. Lorenzo basically saw his marketing department as his advertising department, and pushed them to really focus on low fares and hooky promotions, rather than build up a frequent flyer base that would pay higher fares for better service. He didn't really understand yield management until years after AA
and United had turned it into a science. Furthermore, by the time he did realize the full potential of a strong marketing department, Continental/Texas-International didn't have a super computer capable of doing the kind of ticket price, seat inventory, and fleet allocation calculations needed to maximize their revenue which was one of his reasons he acquired Eastern which had System One and a large frequent flier base. Lorenzo, I believe, thought that deregulation meant that consumers would ALWAYS look for the cheapest fares, and therefore he felt it necessary to have the lowest costs and the biggest network, which we know today to not necessarily be true; there are many people that are willing to pay more for a premium product and will give their loyalty to that airline if they continue to provide that product.
I do believe that Frank Lorenzo had good intentions for the acquisition of Eastern, but soon realized after the purchase how dire their situation was. From Eastern he did get Continental access to System One, and their frequent flier base, but he realized that Eastern’s unions, specifically the IAM, would not agree to wage cuts, and took Eastern in CH
.11 believing he would get the same results he got when he took Continental into CH11. However his plan didn't quite work out, and Eastern really struggled to operate through the strike. Unlike the early 80’s, where there was high unemployment and skilled people desperate for work, the late 80’s had low unemployment and the general public had begun to grow weary of corporate management after many high profile leveraged buyouts of many large American corporations had only made a few people richer and left the majority of the working class watching. Because of this, Eastern’s already shoddy product and poor employee morale worsened. That's when I believe that Lorenzo in a nut shell said "screw it," and began to harvest the valuable assets out of Eastern and transfer them to Continental. Continental would buy assets from Eastern, way under market value, and then lease it back to Eastern for far more than the going lease rates. He took aircraft such as the A300's and newer 727's and handed them over to Continental; and ultimately, Continental took over the operation of System One too. Then when all the valuable stuff from Eastern was gone, he let Eastern go under.
Continental was always Lorenzo's baby, and he hung onto it for as long as he could. Many things prevented Continental from becoming Lorenzo's dream, the first Gulf War, the recession of the early 90's, his lack of understating of what a good marketing department can do for you, his alienation from his VP
's leading to poor inter-office communication, and the unions. But overall, Lorenzo is misguidedly vilified by many people.