People Express Airlines
Founder: Donald Burr.
Distinction: Made air travel affordable.
Primary Products: No-frills, cut-rate airline flights.
Annual Sales: $1 billion at peak.
Number of Employees: 3,500 peaks.
Major Competitors: American Airlines, Continental Airlines, United Airlines.
Headquarters: Newark, N.J.
Year founded : 1981-1986
Before the 1980s, air travel was an expensive luxury. If you absolutely had to haul your family cross-country to visit relatives, you booked the flight and blinked
back the tears. If you really wanted a great vacation, you bought the ticket and hoped that you'd still have money left upon landing. And if you truly needed to fly
to a trade show or sales meeting, you bit the bullet and prayed that enough business would result to justify the airfare.
In 1981, however, all that changed. Suddenly, a
Chicago family of four could visit relatives in Miami for around $350. A vacationer
from New York could travel to London for less than $100. And a businesswoman
in Los Angeles could fly to a San Francisco meeting for as little as $39.
The reason? People Express, a new kind of airline that set up shop in Newark,
N.J., and immediately set the rest of the industry on its ear. Negotiating
previously unchartered terrain as a no-frills cut-rate carrier, People attracted
people who previously could not afford to fly—along with those who now could
justify it more often.
Want to hit Atlanta for the weekend, and don't mind shuffling along with your
lunch as if you're at a bus terminal? People Express could fly you from Newark for
only $69, while the equivalent ride on Greyhound cost $104 and took 19 hours.
Additionally, People advanced its populist ideals through employees who accepted
jobs for much less than competitors paid. Like Internet startups today, the
workforce was motivated by the mission—in this case, bringing reasonably priced
airfare to the masses. Of course, the stake in company ownership, also offered
then didn't hurt.
Not surprisingly, it proved too good a last. Operating on the unstable cusp of the
age of airline deregulation, the company's audacious pricing let to massive
losses. Administrative cost-cutting further eroded its ability to best the
competition, which struck back on its own by also jumping on People's pioneering
discount strategies. Employees saw their stock values plummet, until a despised
rival finally absorbed the remains. And, in just a few short years, People Express
was completely gone from the scene.
As leaders of both their church and Sunday school, Donald Burr's parents had
always hoped that he would someday enter the ministry. The young Burr
developed a taste for commerce instead, and went off to Stanford before earning
an M.D.A. at Harvard. Eventually he parlayed this training into a job with a
different kind of high flier: Frank Lorenzo's Texas International Airlines. There,
Burr quickly grew personally close to his boss—even serving as the best man at
Lorenzo's wedding. He became professionally smitten with the airline business.
Burr was not enamored, though, with Lorenzo's ruthless management style. So,
when the industry was deregulated in 1978, he was among those entrepreneurs
who began developing plans to launch a new airline. Burr's idea was for a startup
that rejected costly amenities in favor of deep discounts that would encourage
average consumers to fly more often. He also envisioned a kinder, gentler
company that would treat its workforce with dignity and respect—while giving it
an unprecedented opportunity to share in any success that ultimately
Burr and more than a dozen other young executives left Lorenzo's employ in
1980, purchased some old Lufthansa planes, and adopted the name People
Express to convey their intended image. With cash of their own bolstered by $24
million raised in the first-ever initial public offering for an airline, they began
flying newly repainted jets out of Newark's dilapidated North Terminal the
following year to long-ignored cities such as Buffalo, Columbus, and Norfolk.
From the start, their daring innovations attracted hordes of appreciative
consumers and enthusiastic employees. It also attracted the wrath of Lorenzo—
who firmly believed that the idea for a discount airline initially was his, and who
greatly resented his one-time friend and protégé for turning it into reality.
Largely because their fixed costs were more or less constrained by expensive
infrastructures and ironclad union contracts, even motivated existing operators
could not at first duplicate Burr's cut-rate approach. Additional newcomers
eventually surfaced with similar concepts, but, like Peoples Express, they soon
discovered that there was a lot more to the business than simply attracting
employees who were willing to work cheap and a public that wanted to fly for
practically nothing. From the time the industry was deregulated through 1986, in
fact, some 150 airlines either filed for bankruptcy or completely ceased
operations. And at the end of that period, People Express would become the
poster child for ways the myriad problems could overrun the vast potential.
None of that was apparent in 1981, however, when the not-yet 40-year-old Burr
turned People Express upon the world. Consumers were more than willing to pack
their own meals, sit on cold linoleum floors at Newark International Airport, and
negotiate endless lines and continuous delays for the chance to fly cross-country
for less than $100. Likewise, employees were more than willing to give up
standard industry benefits along with a substantial portion of the wages earned
by competitors to work in an exciting start-up environment where their opinions
were valued and their stock options looked promising.
People's initial bottom-line results appeared quite promising as well. With annual
wages only one-half to two-thirds of the industry average, and everyone from
baggage handlers to pilots required to perform multiple duties, rock-bottom
overhead translated into rock-bottom fares. These helped People fill almost 80
percent of its seats, a remarkably high "load factor" that was markedly better
than any of its competitors. More and more cities were added to the schedule as
revenues rose, and the once-spotty People Express route map was soon
peppered with more than 100 destinations. Among them now were major
domestic hubs such as Denver and Chicago, along with popular international
locales such as London and Brussels. Additionally, Burr purchased several
existing airlines to fuel even more rapid growth. These included Provincetown-
Boston, Britt, and Frontier—the latter of which also was coveted by his nemesis,
As Burr and his lieutenants quickly discovered, however, big-time growth brought
big-time problems. When People supplemented its original short-haul flights to
under-served airports with discount offerings along already popular routes,
entrenched carriers suddenly felt-compelled to flight fire with fire. And with rapid
route extension necessitating rapid workforce expansion, the cautious hiring
practices used from the outset—which carefully screened potential employees to
make sure their abilities and temperaments matched those of the company—were
tossed aside to simply ensure that enough bodies were available to fill all
The result wreaked havoc with an already shaky bottom line. While revenue
climbed from $287 million in 1983 to nearly $1 billion in 1985, a $10 million
annual profit degenerated into a $28 million annual loss. Consequently, the
corporate stock that had been so critical in attracting dedicated workers fell from
more than $22 a share to just over 3 dollars. So, ever as People joined the lofty
ranks of the world's largest airlines, the fate of the spunky upstart was
The insurgent's rapid growth had masked serious underlying problems that could
no longer be paved over with new routes or bought off with new acquisitions.
People Express never cultivated affiliations with travel agencies or implemented a
frequent flyer program. These and many other gaps proved disastrous as
increasingly aggressive competitors exploited every angle in their efforts to bring
it down. Ever more critical, Burr's cost-cutting had caused People to eschew a
state-of-the-art computer network. This now prevented it from operating a
sophisticated central reservation system that travel agents could tap into if they
desired. It also kept People from adopting two-tiered or "yield" pricing, which
competitors employed to match its low fares on empty seats while selling most of
their space at much higher (and much more profitable) rates.
The fare wars might have been People's biggest immediate obstacle, as dramatic
price cuts throughout the industry abruptly took away its biggest selling point.
But other problems hurt just as badly. Perhaps the most painful was fallout from
the Frontier acquisition, which initially had sparked great excitement among the
ran-and-file. It soon proved a major debacle, though, as serious labor problems
and the departure of top executives left the new Denver-based affiliate in a
shambles. Less than nine months after Burr bought it for $300 million, Frontier
filed for bankruptcy.
As resources dried up and hot spots flared, service deteriorated across the board
and losses grew larger. The airline countered by eliminating flights to various
destinations, and even leasing a number of its jetliners to other carriers. But the
hemorrhaging would not cease, and in 1986 Burr was forced to face the
inevitable when he received a takeover bid from his one-time mentor. In
September of that year, he found himself seated across a conference table from
Lorenzo in a Manhattan hotel. When the meeting concluded, Lorenzo's company
had made an offer to purchase Burr's for a bargain-basement $125 million.
The ending may have arrived somewhat ignobly, and most of those who suffered
through its problematic telephone reservation system—or waited uncomfortably
in Newark for a late-arriving flight—probably did not lament its passing for very
long. But People Express forever altered the way airline fares were drawn up and
sold. And it turned an entire generation on to the possibilities of air travel,
changing what was once an expensive luxury into a commodity now enjoyed by