At People Express the rush to profits never slows down
Newark, N.J. — If you fly the crowded planes of People Express Airlines, you may take some comfort in this: The managers who run the airline work in offices that are just as cramped and just as busy.
At People Express headquarters, it's a challenge simply to get from start to finish of the main corridor without being plowed under by some manager rushing past. Here on the second floor of the Newark International Airport, executives fly in and out of their tiny offices, cluster for a short while in the narrow hallway, and then suddenly disperse. Even the chairman can't be interviewed in one sitting - there are simply too many interruptions.
''It's like this all the time,'' says Don Burr, chairman and president of People Express, the airline famous for no-frills service and low-cost fares. Mr. Burr calls this office mania ''part of the condition for creativity. It's a young and entrepreneurial company, and that's the way you always want it to be.'' It's also a profitable, $400 million company, taking on additional planes at the rate of two a month.
The creativity at the airline is hard to miss. For instance, People Express employees are required to own 100 shares of company stock, which they buy at a 70 percent, interest-free discount through payroll deductions. Now the average employee owns $60,000 worth. Not bad, considering many of the workers are in their mid-20s. ''I didn't have that kind of capital when I was 25,'' Burr says. ''These people all own the company and they are interested in building it.''
And they are building a hit product, he adds, tilting back in his scarlet, cushioned chair. ''We're sold out every day. We're sold out before the store even opens.''
Anyone who has ever tried to make a reservation on this airline knows that the best times to call are late at night or before breakfast. It's almost impossible to get through in the daytime. Some travel agents specialize in People Express, using automatic dialers to get through and then placing a day's worth of reservations.
In his airport office, which doubles as a board room, the young chairman explains why he, and a number of other colleagues, left executive positions at Texas International Airlines to start People Express in 1980.
''We could see a better way to provide something of more value to other people - sometimes known as customers,'' he begins. That better way was to offer the lowest fares, and to make customers pay only for what they wanted - something no other airline was doing.
People Express keeps costs down by purchasing used planes, hiring nonunion labor, and basing its operations at the north terminal of the Newark airport, which was underused and thus relatively inexpensive. (This makes it a bit inconvenient for passengers who want to connect with another airline in the main terminal.)
Employees are trained in all areas, and rotate jobs. Fares are collected on the plane, and customers pay extra for snacks and baggage checking; People does not transfer baggage. Secretaries for the officers are an extra expense, so nobody has one. When the airline buys planes, it rips out the old seats and squeezes more new ones in.
All of this translates to low fares $38/$25 (peak/off-peak) throughout the Northeast and mid-Atlantic region, and $99/$75 fares from the Northeast to Florida. These fares, started last month, reflect the first across-the-board increase since start-up.
Flying People Express requires flexibility, says one Boston travel agent. ''If you're flexible, and can fly on one day or another, you'll get there. But it's much more difficult if you can only fly within two or three hours.''
On-time performance is ''unsatisfactory,'' admits Geoffrey Crowley, general manager of the airline, and he says it sometimes has to do with air traffic control - especially in Boston. He says they're attacking the Boston delays by increasing flight frequency.
Still, more consumers are clamoring for the product than the airline can handle. Every day, People Express answers about 55,000 calls - but there are 10, 000 more that never get through. These callers get frustrated, and one can't help wondering if the airline will miss them in the future, though they don't need them now.
''Some people we'll lose for a good period of time,'' Burr admits. ''They have become so embittered by the stupidity of our inability to cope with the telephone. . . .''
''On the other hand, other people, because of the power of our product, will keep trying. Why do you think we have such high load factors? Not because it's easy to reach us, but because the value of the product is so high.'' The company is building a new reservations office which it hopes will solve the telephone problem.
While consumers flock to People Express, transportation companies blame it for their financial troubles. Most recently, Greyhound has complained that People Express' low prices have forced it into unprofitable fare wars. Airlines like New York Air, Piedmont, US Air, and Eastern have felt the heat, too.
''That's kind of exciting,'' says Burr. ''That means we've created something with a surpassing value. . . .''
As it expands, People Express will continue to make waves with competitors. Burr says the People Express of the future ''will be more of the same.'' Last summer the airline started service to London. The $149 one-way coach fares kept their planes almost completely full. It has just opened up in Houston ($99/$75), and expansion plans call for adding cities east of an arc drawn from Minneapolis to Houston. The company also just got permission from London to expand the number of round trips to London from 208 flights a year to 320, beginning in April. In 1985, it will be allowed to operate 350 flights. The airline will add the extra flights to the summer schedule. Expansion to other European countries is inevitable, but no executive is yet willing to say where.
Burr's airline can't be the lone discounter for long. As it expands, it will likely bump into territories of other discounters. New discount airlines encouraged by deregulation, and major carriers changing into discounters, could launch into People Express territory. Burr already has a watchful eye on Continental Airlines, which he believes is now more cost competitive than People Express because of its new wage structure.
''We have set up People Express to be competitive with any potential low-cost airline on the basis that we will outproduce them,'' Burr says. ''Not by being the lowest-paying, and lowest-cost producer, but by having a very spirited place - a work spirit that is unbeatable.''
Does he really believe this? What about all the other concerns facing the airline, such as getting enough capital to finance its planes, opening in new cities, and making sure the line will be able to expand at the Newark airport?
To Burr, these considerations are important, but secondary. Again and again he comes back to the point that enthusiastic workers make productive workers. He believes the airline is most vulnerable ''where we've always been vulnerable - the whole area of managing people relationships. How do you create the conditions for activity? Communication? A whole host of difficult people-related problems - that's always been the risk, and I don't see it changing.''
In the past, managers themselves have carried the ''People Express excitement'' down to all levels of workers. But as the company grows, it's more difficult for this direct involvement to take place.
But Burr has always been a ''hands on'' manager, and he expects to stay that way. He still addresses every class of new people coming in, and he's in the process of getting a reservations hookup installed in his office so he can take customer calls there. Other managers in the airline pitch in as flight attendants or work on reservations.
But it's hard to run an airline like this. ''People get tired,'' he says. ''It's a lot easier to simply have an autocracy, where there's a strict hierarchical order, and give orders. It's much more orderly.'' However, the Burr philosophy says that's not the way to spawn creativity, and in today's airline climate, the creative ones will be the winners.