People’s Express Airlines: Rise and Decline

People’s Express Airlines: Rise and Decline

UPO1

Submitted by:

Priyanshi Garodia

Section E

Q1. Identify the environmental factors that led to the growth and decline of People Express Airlines. 

Ans:

Donald C Burr founded People Express Airlines, and it witnessed extreme highs and lows during its tenure in the industry. Starting service in April 1981, the company went on to file revenues nearing $1 billion in 1984 and rapidly declined from there to face possible bankruptcy in 1986. While major internal factors also contributed to this immense difference in growth and decline in such a short time interval, some very significant external factors also played an influential role.

1. External factors leading to Growth:

Lack of competition in the airline industry during the late 70s caused Congress to deregulate the airline industry in 1978. Removing restrictions on new entrants provided the opportunity to form People Express. By 1981, restrictions on new routes and fares had also been removed. This enabled Burr to establish one of the key selling points of People Express; Low Fares. The company hence could focus on cutting down on of costs by offering only essential services, and pay as you purchase for the other optional services. By increasing flying hours and operating out of Newark, a non-conventional route, the company concentrated on increasing market share while at the same time not upsetting the mainstream players of the industry.

PE saw a phenomenal rise in its revenue, which reached almost $1 billion in less than three years of operation.

1. External Factors leading to Decline:

The introduction of ‘low-cost Airlines’ into the market drove several competitors to follow the footsteps of PE. Texas International Airlines (TI) took over Continental airlines with the principal purpose of introducing it as a low-cost airline. The emerging of continental airlines as a low-cost airline made the major competitors take notice of the new trend, fearing the loss of market share. They hence aggressively promoted their cost-saving programs like frequent flyers.

Eventually, Northwest decided to match and better the prices offered by PE, while maintaining better services. This led to PE reporting its first loss in the fourth quarter of 1984.

The most important ‘paradigm shift’ was made by American Airlines, when they introduced the concept of variable pricing into the market. The same flight had seats to be sold at prices ranging from $19 to $1000. With inapt computer systems, PE could not match this, and had to stay content with single pricing per flight.