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PEOPLE
EXPRESS
AIRLINES
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PEOPLE EXPRESS
 Founded by Donald C Burr to try and develop a better way for
people to work together

 Congress deregulated the airline industry in 1978

 In 1980, the airline industry was offering a homogenous and

undifferentiated product

 Burr wanted People Express to be different by attracting

superior service-oriented people

 Very low prices and very high frequency of flights are its other
marketing tools
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DONALD
BURR – A 1965 1973 1980
BACKGROUND Graduated Hired by Left TI in 1980,
because Burr
STORY Harvard
Business
Texas
International
saw TI business
going in
School Airlines 1973 different
direction than
Frank Lorenzo,
CEO

President
National President of
Aviation Corp TI

1972 1979
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Six Precepts for the New Organization

 Service, and a commitment to the growth

and development of its people

 To be the best provider of air transportation

 To provide the highest quality of leadership

 To serve as a role model for other airlines

and businesses

 Simplicity

 Maximization of profits
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EMPLOYEE ENGAGEMENT

 Named all their employees “Managers”

 Flight attendants were called “customer

service managers” and pilots as “flight
managers”

 Burr wanted them to feel that they are a

part of something greater

 He believed that the employees are

always managing something – people,
environment or resources
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PURPOSE AND PROCESS

 Managing by walking around to Making a

better world

 Creating a big noble purpose motivates

everybody

 Tried to inculcate by teaching and letting

employees teach each other

 Burr was against the “beat them and

they’ll do more” policy
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STRATEGIES- Filled advertisements with
PRODUCT company information and its
policies
AND
POSTIONING
Targeted business people who
wanted big savings and
people who otherwise might
not fly at all

PE’s peak prices were about

35% to 55% below standard
prices and off-peak prices
were 60% to 80% cheaper
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STRATEGIES- Low cost Unbundled
PRICING AND workspace Product
COST
STRUCTURE
Used them for
Bought used
10.5 hours per
aircraft
day

Advance or on
board ticketing
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ORGANIZATIONAL STRUCTURE

Burr and 7
managing
officers

8 General
managers

FM and CSM
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SELF-MANAGEMENT, CROSS-
UTILIZATION, STAFFING
 Burr expected everybody to contribute to
policy level decision making

 Through management teams, advisory

councils and staff committees

 Employees were continuously rotated to

keep costs low and flexibility high

 Led to simple procedures

 Rigorous recruitment process to find

mature, hard-working, assertive and
energetic persons
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COMPENSATION
 Difference between lowest and highest base
salary relatively small

 Everybody was required to buy 100 shares, at

book value upon being hired

 PE paid 100% medical and dental benefits

 Offered $50,000 in life insurance

 401K Stock purchase plan – invest upto 15%

of salary in PE common or preferred Stock and
company would contribute $0.25 for every $1
the person invests

 Ownership income program – received a

quarterly dividend based on how many shared
purchased
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INITIAL
EXPLOSIVE
GROWTH

Took off on 30th Financed by Became the

April, 1981 Citicorp Venture fastest-growing
Capital and airline ever
Hambrecht
Quest after initial
hiccups
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 External Customer Issues:
 lengthy delays
 over booking flights
 Internal Employee Issues:
 Few opportunities for self-management and
Customers &  personal growth
 Employees were overworked
Employees  Flight managers underpaid
became
unsatisfied  Burr tried restructuring the organization and
strengthened the leadership development
training.
 PE bought another terminal to solve its
overcrowding issues
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CHANGING INDUSTRY
 Continental and People Express, positioned as
low-cost airlines started to bring in higher
number of consumers

 Major carriers started replying with frequent flyer

travel programmes and computer aided variable
pricing

 Did major gate acquisitions to bottle PE’s

expansion

 Deep-pocketed rivals easily competed against

PE’s pricing policy to siphon consumers

 The Ultimate Super Saver by American Airlines,

aided by their variable pricing reduced PE’s
traffic for the first time
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Expansion
 Despite mounting problems within the
company and uncertainty in the industry,
People Express Airline was expanding at a
very rapid pace

 Burr acquired Frontier Airlines out of Denver

by outbidding his former boss Frank Lorenzo.

 Frontier was poor business investment:

 Already loosing business
 Now operating in a totally new city

 Company’s management had no strategy put

in place to stay in control of the mid-sized
segment
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Expansion (cont.)

 In 1985, the company almost ran out of

cash after quarter of crushing losses
 People Express was mounting a lot of debt,
as a result their interest expense took away
a great percentage of their revenues over
8%

 Major airlines started to compete more

aggressively with People Express by
offering lower-fare flight deals to customers
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DECLINE AND FALL

Frontier airlines
was a burden – Frank Lorenzo
United and Sale of bought PE for
Continuous
Continental Frontier, aimed $125 million
struggle for
were added to bring in $200 and Frontier
market share
pressures on million, failed airlines for
its high $176 million
operating costs
 STRENGTHS
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 Financial
 Lean cost structure
 Lowest cost per available seat mile - $0.05
 84% load factor compared to industry 60%
 Low fuel costs
SWOT  Human Resources

Analysis  Employee stock ownership

 Recruit service professionals – Nurses,
SocialWorkers, etc.
 Employee profit sharing
 Technology/Equipment
 One fleet type – Boeing 737 saved on fuel, training,
 maintenance.
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WEAKNESSES

 Financial

 Avoided additional revenue by refusing

cargo shipments
SWOT  Human Resources
Analysis
 Overworked employees

 Understaffing

 Difficult recruiting standards

 Management Hierarchy
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WEAKNESSES

 Marketing

 Fees for checked bags

 “Nickel and diming” viewed as “cheap”

SWOT  No hotel or rental car
Analysis
 Overbooking and lengthy delays

 Baggage delays

 Technology

 Issues with customer reservation system

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OPPORTUNITIES
 Flexibility in the workforce by cross-
utilization

 Able to undercut competitors by the low-cost

structure
SWOT  Ability to appeal to customers who might
Analysis normally drive or take a bus
 Continuing addition of aircraft allowed
service to new routes
 Deregulation in the airline industry reduced
barriers to entering the market and
government regulation.
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THREATS
 Financial
 Employees gain seniority and require wage
increases
 Predatory actions by competitors in price war
 Human Resources
SWOT  Donald Burr’s large ego

Analysis Understaffing/overworking creates unhappiness
 Low employee morale
 Employees desired unionization like other airlines
 External Conditions
 Fuel price increases
 Recession
 Accident/Crash
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Strategy and Alternatives to Key Problems
 Refocus:

 People Express lost sight of their initial goal

of offering excellent service at an affordable
price

 People’s initial strategy to let the employees

manage themselves is counter-intuitive to
running a successful business because it
lacks organizational structure

 People needs to take control of its

financials

 Their losses (debt position) are increasing

at a rate which it cannot control
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Strategy and Alternatives to Key Problems

 Management need to improve their cash

position and cut down on their spending

 Refdelay the expansion of new terminal C

in Newark

 Cut out the businesses that are not

profitable

 SELL FRONTEIR AIRLINES

 Refocus: cutting costs and becoming

efficient again
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Restructuring the business
To cut cost and expense,
People must sell some of
their airplanes and use this
money to pay off outstanding
debt and to invest in
rebuilding its business
model.
They need to reduce People needs to re- Communication
flight frequency, implement a general between its
especially those internal training employees and
which are not so program to retrain customers needs to
profitable employees and be improved
reinforce the
company’s strategic
plan and goals
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Creating Profit

 People Express can still be a leader in the

market segment that they started

 They need to go back to the basic by

providing customer the best experience at
the lowest cost

 By using smaller aircrafts on short flights to

smaller cities that weren't reachable by
major carriers made the company very
profitable. (The Newark hub servedthat
purpose)
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Keeping Track
 Management at the company should provide
customer/employee a platform to
communicate (they should also take very
strong measures in keeping their stakeholders
happy

 Pay close attention to the financial statements

 Keep control of customer traffic such as ticket

sales

 Hire the best financial managers that they can

 Make sure that the board consists of people

from diversified backgrounds

 Pay close attention to how investor react to

the company’s stock
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Thank
You