People Express Airlines: Rise and Decline

Submitted by
Amruta Kharat -PGP1006
Krishnapriya-PGP10026
Saravana Kumar Murthy-PGP10045
Shanaz Begum- PGP10047
Sheersha KK- PGP10048
ANJALY TA-PGP10190
Outline of the path of People Express
Growth to success
• 1981-began its service
• 1982-Grown to 1000 people and management teams span of
control was getting huge
• (1981-1983)-stocks rose to $50/share
• 1984-Every flight had 4 experienced customer service managers
all knowledgeable

Decline
• 1984-Combination of factors like customer dissatisfaction and
competitor moves made PE face its financial loss
• 1985-Due to yield management by American airlines PE began to
lose market share
• September 15,1986-PE was Purchased by Texas Air
Strategy Planning…….. Deregulation by reduced prices, unrestricted and convenient flight
schedules was to attract both business people and people who wont fly
at all
Burr also aimed to
build a productive Teaching was the essence of leadership,which would let people
and fun environment internalize PE’s direction in their own terms

Purpose: To become the leading institution for constructive change in the

world

“Work Hard play Hard atmosphere, There's no substitute for hard work
Main Strategy:
To provide outstanding service by highly
motivated people and to take advantage of
To stress on the importance on goals and objectives they were rephrased as
deregulation “percepts” and the 6 percepts are as follows:
• Service; Growth and commitment to people
• To be the best provider of air transportation
• To provide highest quality of leadership If team’s plan was
consistent with
• To serve as a role model for others percepts they could
• Simplicity proceed without
• Maximization of profits permission

Burr perceived himself as a hard-nosed businessman, whose ambitions and aspirations have to do with providing goods
and services to other people for a return
Implementation of the Strategies

Key was to maintain low costs, so there were cost savers as

Marketing: to differentiate in follows:
• Bought used aircrafts from other carriers
3 ways
• Flew flights more than average flight hours of 7.5 hours
• The main Newark, New jersey terminal were rented which
were cheaper than south and west terminal
• Ticketing was ticketing was done either in advance with
High frequency of flights

Attracting and maintain service

travel agencies, or on board the aircraft with CSMs

Cost structure for the
• People shared offices, and most of the decorations were PE
marketing strategy
advertisements, customer letters, and "hero charts"
Low prices

• Offered a fully unbundled product

• Offered no arrangements with other airlines, no hotel or
oriented people

automobile reservations, allowing its "res agents" to

handle calls quickly and with inexpensive equipment
Strategies with HR
No one
Sel
● compensati
●

Or Cr
Recruiters

C
S
●
●
Level1: on strategy
●
Burr and Everyo
● was looked for was to
people reward
7 other
ne was assigne
f
managing who were people for
officers
expect d to do bright, good results
who
provided
line and ga ed to
be self Ma
the
same os
educated,
well-
groomed,
and to
minimize
cost for the
o
t
staff company
mature,
leadership work The
●

manag
ni
for more articulate, differences
all the
s m
assertive,

na
than one between
functional ed i.e creative,
time the highest
areas
Level 2 :
they ●
Everyo
energetic, and lowest
●
conscientio base salary

za were
ge
●
8 General us, and levels was
Managers ne,

U a p
hard relatively
who all includi working small
provided stock
requir
●

Had to be
ng
●

me
day to day ownership
good team

ti
implemen
tation and
ed to managi players,
and profit
sharing
follow
til e
leadership willing to
ng were a big

nt
as well as do part of one's
planning compa officers different

f
compensati
and

on ny’s , was things, and on package

coordinati
ambitious at People

an
ng with
guideli expect in Express

iz ns
other
achieving PE paid
●

areas
nes on ed to personal 100%
●
Level 3:

al rotate medical and

self
d
●
Flight developme
managers dental
betwee nt
manag

fi
: pilots benefits
company

a a
●
with no
who flew
ement n in- was deductible

Go
flights
flight committed

str
Maintena for all its
to
●

nce to serving people, and

Managers achiev and its offered
ground employee, $50,000 in

ver
:
Technicia e
operati
ti so long as life

ti
n
insurance

uc
ns who they
look after organi worked for
maintena ons everyone,
nce zation’
na and/or
within the
context of
regardless
s
o o
activities of salary
●
Customer betwee the level
Service
Managers
: tu perfor
mance nc n line
and
precepts
and
devoted
covered
●

people's

g
basic needs,
Generalist themselves like a "social
objecti staff
n n
s who

e
to serving safety net,"
performe
d All tasks
re ve functio
ns
the
customer
with salary
and benefits
THE UPWARD SPIRAL PERIOD…….
Problems that emerged:
Became the Fastest growing airline Industry • Proper HR planning was not done
due to slow rate of recruiting
From its opening in 1981 growth compounded at annual rate more than 90%,every quarter from 2nd quarter of 1982 to 3rd quarter of causing overload to workers
1984 was a profitable one
• There was too much rotations due
to overload of work due to which
No of aircrafts went from 3 to 76, income per share and the stock price also soared people were not able to learn
much
• people were feeling frustrated in
their work as cross-utilization was
not well received and
management was less supportive
• Also there customer dissatisfaction
because of overselling of airplane
and also due to flights being
delayed or cancelled during
unfavourable times
Solutions to the Problems
A new structure was formed to further "re-create the small, close groups of the early days
Managers decided which operational "ops" group or "home" to join, each of about 300 people
six 727 ops groups, three 737s, and one 747 each was led by a managing officer, with the support of three general managers, 15 to 18 team managers, 60 team leaders and about 200 CSMs, FMs, and MMs

To increase the level of support for everyone it was decided to strengthen and enhance the leadership development training program
Each level of leadership would then train the next level in their operational group

PE developed an internship program….

Aimed to solve the selection process problem by establishing a two year apprenticeship program for undergraduates, whereby the company had ample opportunity to further evaluate the interns for prospective employment as full time employment

Incentive program was introduced to give immediate reward for good services
 THE Downward SPIRAL……

Industry issues

●
PE always gained upper hand over its low cost carriers
●
But PE was now threatened by major competitors who played strategies by mergers, internal rerouting which was to lock PE out of key and major hubs
●
The majors also made frequent flyers programs aggressive

Competitors

●
The competition was very fierce as the competitors were also undercutting prices so PE was losing its customers
●
problems in scheduling, baggage handling, and other services added to the worry
●
American lines also dropped the bomb by introducing low cost ,i.e they used yield management technique which made PE lose a considerable market share

Financial issues

●
Financial issues started to surge up due to the above issues and also it recorded it its first loss in 1984
●
Increase in fares gave a brief relief in 1985 and again it went to loss
●
The internal conditions also worsened as there was overload and operating problems
Strategic Options left……..
Options Left
Develop new hubs, acquire new
gates or purchase a new airline
Sell aircraft and generate cash and
invest them into the business
Chain of events before the fall…
• Attempted to build up a presence in the western
United States, an area where discounting had been
somewhat limited, by obtaining gates and landing
rights in Los Angeles
• PE bought Frontier Airlines for its yield
management system, frequent flyer programs, and
management team ,but the financial worsened
more
• 1986-bought britt and Provincetown-Boston
Airlines
• Introduced conveniences, like a first-class section,
in-flight services, VIP lounges in some airports, and
a frequent flyer service all to win back some
customers, but demand was not there
• September 14, PE's board of directors decided to
accept Frank Lorenzo's offer to purchase PE for
$125 million and Frontier Airlines for $176 million.
HOW The game COULD HAVE BEen PLAYED?

SHOULD HAVE CUT OUT FRONTIER AIRLINES AND SHOULD HAVE MADE WAYS TO GENERATE CASH

CREATE RESTRUCTING BY ALLOCATING DIVISIONS BASED ON FUNCTIONALITIES(FINANCE,HR,OPERATIONS etc.)

CREATE PROFIT FROM UNTAPPED SEGMENTS AND INVEST THEM TO FIGHT MAJOR COMPETITORS

CREATE STAFF-MANAGEMENT AND CUSTOMER-MANAGEMENT PLATFORM TO ADRESS QUERIES

Thank YOU