Case Study
Frank Lorenzo had a dream for the very childhood to own an airline. He grew up in New Yoke city in the shadow of LaGuardia airport, became fascinated with the airline industry and vowed one day to be an owner of a major airline.
He and a friend invested $ 25000 each in a 1969 to start an airline consulting firm called Jet Capital. In 1971,they took control of a small regional airline known as Texas international. He was successful in running this airline and was able to take over a major carrier, Continental Airline in 1981.
Being an aggressive and determined decision maker, Lorenzo decided to streamline the operations of Continental Airlines. He authorized a detailed and analytical study of cost structure and concluded that the overhead costs too high and specially the labour costs. His study indicated that the labour cost for Airline was about 20percent higher than the comparable labour costs of international carriers. He decided to take steps to lower the labour costs.
Lorenzo asked the labour union to negotiate lower wage rates in order to make continental Airlines more competitive. The union refused. Lorenzo was adamant and stuck to his position that labour costs have to be reduced and he refused to consider other options. In a bold move in 1983, Lorenzo declared bankruptcy for Continental Airlines to break the existing labour contract and employ non-union workers at a much lower cost.
Even though the labour unions became his enemies, he was able to hire new employees and with lower labour cost, Continental was able to reduce fares and increase its market share rapidly.
In 1986, Lorenzo made a series of bold moves and acquired People's express Airline, Frontier Airline and Eastern airlines, which was one of the largest airlines in America. Eastern airlines, at this time, was having its own trouble with its labour unions and these unions were very strong and enjoy tremendous power in negotiating settlement with the management. Lorenzo's acquisition of Eastern airlines made the unions even more determined to get what they wanted.
During negotiations, virtually every concession he requested from labour was denied. The unions went on strike in 1989.Lorenzo once again, took Eastern into bankruptcy, hoping to repeat the success of Continental experience. It did not work. The unions were too strong. Eventually, his control of Eastern was taken away from him by the courts. In 1990, Eastern airlines was shut down once and for all.
In a bold attempt to come back into the airline industry, Frank Lorenzo applied to start another airlines named ATX to serve East coast points from Washington area. His bid has been opposed by the unions who consider him as a destroyer of airlines. His bid may or may not be approved but he has become the most controversial and perhaps most disliked person in the airline industry because of his management tactics in managing an airline.
1. Discuss the personality traits of Frank Lorenzo and establish whether he is a type A or type B personality.
2. How did the attitudes of both Lorenzo and the unions affect the operations of Eastern airlines?
3. If you were hired as a consultant and as an arbitrator to handle the dispute at Eastern airlines, what recommendations would you provide to solve the problem amicably?