PEOPLE’s EXPRESS

The Corporate Culture at People Express Airlines

People Express Airlines begun operating in 1981 and grew into being the fifth largest US carrier by February
1986 . However, by the end of 1986 is had been sold to Texas International Airlines due to its financial
problems. In my paper I will try to analyze the decline the company from the point of the view of the corporate
culture in the company. Most of the data in my paper comes from a case study on People Express published by
the Harvard Business School .

From when People Express (PE) was founded by Donald Burr, the company established very clear principles
and values to drive its staff in all its activities. As it turned out, the 6 so-called precepts and the corporate
culture that everyone cherished were instrumental in bringing the company to its rapid and wide-scale
success. However, although staff worked hard to offer a quality service until the very end, by 1985 the
company was nicknamed “People’s Distress” because of its inability to cope with the scale of its operations. As
I will argue, it was management’s decision to continue with the rapid expansion of the company despite the
arising problems that lead to the growing instability and decline of the company. Thus, People Express failed
because the economic and logistical situation made it impossible to continue fulfilling the goals that were part
of its corporate culture, particularly its commitment for quality assurance (PE’s second precept was ‘to be the
best provider of air transportation’ ). Corporate culture, although a continuous driving force for the company,
was eventually undermined by PE’s ability to manage its non-human resources.

The ideas that Donald Burr built into his airline were revolutionary. In an age where employees were given
little flexibility and were closely supervised, People Express was an enterprise that truly empowered its people
and gave them independence. The environment in which people worked was very motivating – not only
because of pay incentives, but mainly because it served some basic spiritual needs of the employees. For
instance, it was emphasized that employees were part of People Express’ goal to “become the leading
institution for constructive change in the world” . This motivated the people, because it was different from
most other jobs, where employees worked just for the sake of their bosses’ profits or their own wages. In
addition to this, the work environment was also socially rewarding. Said one Customer Service Manager (PE
named all its people “managers”): “The greatest thing was the people; that’s what made you go and work
hard. […]” The Employees were also empowered by allowing them to rotate to their job of choice (provided it
was available and they had the qualifications for it). And finally, they had the freedom to innovate and even to
make mistakes, as long as they remained focused on the goals set by the precepts, particularly on ‘taking care’
of their colleagues and the customers . All these, along with the team spirit, made employees very motivated
and willing to work hard: “Everyone was working towards a common goal; we all cared about the company.”

These characteristics of the climate at PE were essential for motivating the employees, and they all worked
together with the set of values that Burr built in his company. In addition to hiring only the employees that
were a match for this environment, the company also carefully trained its new employees into this culture,
with Burr himself being present at the trainings either physically or in the form of a 4-hour video recording . In
these workshops, as well as many of the memos sent out to employees, the importance of the precepts was
capitalized. Burr explained the rationale behind this:

You have people all over the world at 50,000 feet, 10,000 feet, and at airports all over the world. They have to
be their own internal system, you can’t control them, supervise them and so forth. So if they are internally
motivated [and] they understand the objectives, then they can […] serve our customers in the best possible
way.

Although this strategy was an alternative to classical ways of controlling employees, Burr’s success in
constructing a corporate culture exactly the way he wanted it ultimately constitutes a success in exerting
control on his employees. According to the classification of Charles Perrow, control can be direct, bureaucratic
or fully unobtrusive . The recognition of Burr’s ideology within the organization, although unobtrusive, was
nevertheless a way of exerting control on the employees.
PE’s corporate culture, both with its ideological and work environment components, never failed. However,
there were periods when employees were absolutely overwhelmed. In June 1983, Burr admitted that PE was
“operating beyond [its] practical capacity”, but remained convinced that stopping the growth was not the
solution. As a result, the company employed more workers and restructured itself so that work would be
conducted in smaller, more manageable working groups. Eventually the corporate culture remained vigorous
and continued to be a driving force for the company.

The company’s logistical problems were not, however, as easy to overcome. As staff continued to work on
efficiency and the delivery of the best possible service, the company was also being pushed forward by an
extraordinary ambition at the level of its management, despite the fact that PE was obviously operating
‘beyond its practical capacity’. The decision for continued growth exacerbated the following logistical
problems, leading to subsequent financial problems . Firstly, the Newark terminal, which People Express used
for its operations, had been operating well over its design capacity (about 1,000,000 passengers a month
instead of the 100,000 which it was designed for). This lead to overcrowding and delays, especially during
holidays and weekends. Secondly, People Express had run into the problem of having to deny boarding to
some ticketed passengers because it had decided to overbook planes . Finally, People Express had begun to
face increasing competition because it was now operating on routes where major airlines were already well-
established. Thus, in the face of the declining quality and attractive fares from other airlines, customers began
to turn away from People Express.

The discrepancy between the quality of service that PE aimed to offer and the resources available to achieve
this goal should have been recognized earlier by those running the company. As a low-cost carrier that
challenged the preconception that good service can be offered at an affordable price, the company’s position
on the market depended on continuously offering reliable and impeccable service. In my opinion, the price
that the company set for its service was not even that important given the fact that it had already established
a customer base and that its fares were substantially lower than those of the competition anyway. However,
allowing the quality of the service to drop should have been avoided at all costs. What’s more, PE’s finances
had been managed ‘on the edge’ from the very beginning, so the company was also very vulnerable to even
small drops in its income. Unlike the major carriers, which could drop their prices in order to compete with PE
even despite short-term losses, Burr’s company had to rise its prices as soon demand for its services fell.
Having lost its reputation for providing high-quality service and its ability to offer competitive prices, it could
no longer retain its customers.

In addition to failing to recognize the gravity of the logistical problems, Burr made an additional decision that
was not in the spirit of the principles that he had taught his employees: the purchase of Frontier Airlines.
Firstly, this went against his previously stated commitment not to buy another airline . Secondly, Frontier
Airlines’ culture and business model was too different from PE’s to be able to successfully integrate with it in
the intended timeframe. Frontier had high operating costs and a unionized workforce, and was already
struggling financially . This, along with concern from industry analysts , should have discouraged Burr from
closing the deal. Nevertheless, he went ahead with the boldness that characterized him, despite the risks and
PE’s own problems, which now included the resignation of Hap Pareti and Lori Dubose, two key figures in the
organization .

To sum up, the failure of People Express came because of a clash between the organization’s established goals
and the too ambitious pursuit of market share. During the first years of People Express, the corporate culture
and the ambitions of management worked hand-in-hand to drive the company ahead: after having set up a
system which insured significant cost cuts, the ambitious management succeeded in increasing the scale of the
business manifold. However, by 1985, because the business had grown so large, the employees had begun to
have trouble fulfilling PE’s goal of being ‘the best provider of air transportation’ . The ambition to further
expand before logistical issues were resolved sealed the organization’s fate.

Burr eventually had to sell People Express because of its financial difficulties, but the business model of his
company has permanently transformed the airline industry. It was, after all, Burr’s principle of cutting costs
that eventually allowed other carriers to compete successfully with People Express and drive it out of the
market. By the time People Express was able to expand its service to cities where other carriers had been
operating for decades, its competitors had already learned new ways to cut costs and costumers had already
learned that air travel can be affordable. In this sense, although the context of the industry as well as some
managerial mistakes forced Burr to eventually sell People Express, in only five years he had established ‘a new
way to conduct business’ , and his vision had gathered enough momentum to ‘make a better world’.