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People Express Airlines (Case Study)
- 1. RISE AND FALL PEOPLEEXPRESS AIRLINES (MDI Murshidabad)
- 2. PRESENTED BY Ram Pathak BikashChaudhury Atif Wakeel Gourav Kumar Sunda Arko Das
- 3. PEOPLE EXPRESS –SOMETHING DIFFERENT • 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
- 4. DONALD BURR –A BACKGROUND STORY 1965 Joined National Aviation Corporation 1972 Became President 1973 Joined Texas International Airlines 1979 President 1980 Resigned and set off to Found PE
- 5. PRECEPTS Service; commitment tothe growth and development of our people To be the best provider of air transportation To provide the highest quality leadership To serve as a role model for others
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- 7. EMPLOYEE ENGAGEMENT • Namedall 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
- 8. 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
- 9. INITIAL PROBLEM ANDSTRATEGY • Not achieving critical mass would endanger PE from other players • At first, PE stayed away from routes occupied by giants • Growth and expansion would develop people and in turn develop the company
- 10. PRODUCT AND POSTIONING •Filled advertisements with company information and its policies • 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
- 11. PRICING AND COSTSTRUCTURE Low cost workspace Unbundled Product Bought used aircraft Used them for 10.5 hours per day Advance or on board ticketing
- 12. ORGANIZATIONAL STRUCTURE Burr and7 managing officers 8 General managers FM and CSM
- 13. INITIAL EXPLOSIVE GROWTH •Took off on 30th April, 1981 • Financed by Citicorp Venture Capital and Hambrecht Quest after initial hiccups • Became the fastest-growing airline ever
- 14. SELF-MANAGEMENT, CROSS-UTILIZATION, STAFFING • Burrexpected 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
- 15. COMPENSATION • Difference betweenlowest 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
- 16. CONSUMER DISSATISFACTION, PROBLEMS ANDSTRATEGIES • Overbooked planes by a significant margin • Terminal got overcrowded • Delayed and cancelled flights forced passengers to wait in uncomfortable situation • High workload and too much rotation were the internal issues • Burr tried restructuring the organization and strengthened the leadership development training • PE bought another terminal to solve its overcrowding issues
- 17. CHANGING INDUSTRY • Continentaland 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
- 18. ADOPTING STRATEGIES • AcquiringFrontier, Britt airways and Provincetown-Boston Airline • Acquiring Frontier gave PE an expansion, without long term, low return investments • Burr needed Frontier’s yield management system, frequent flyer program and management team • But, Frontier immediately started losing money and became a burden to PE
- 19. DECLINE AND FALL •Continuous struggle for market share • Frontier airlines was a burden – United and Continental were added pressures on its high operating costs • Sale of Frontier, aimed to bring in $200 million, failed • Frank Lorenzo bought PE for $125 million and Frontier airlines for $176 million
- 20. SWOT ANALYSIS • Strengths •Financial • Lean cost structure • Lowest cost per available seat mile - $0.05 • 84% load factor compared to industry 60% • Low fuel costs • Human Resources • Employee stock ownership • Recruit service professionals – Nurses, Social Workers, etc. • Employee profit sharing
- 21. SWOT ANALYSIS(Continued) • Weaknesses •Financial • Avoided additional revenue by refusing cargo shipments • Human Resources • Overworked employees • Understaffing • Difficult recruiting standards • Management Hierarchy
- 22. SWOT ANALYSIS(Continued) • Nohotel or rental car • Overbooking and lengthy delays • Baggage delays • Technology • Issues with customer reservation system
- 23. SWOT ANALYSIS(Continued) • Opportunities •Flexibility in the workforce by cross-utilization • Able to undercut competitors by the low cost structure • Ability to appeal to customers who might 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.
- 24. SWOT ANALYSIS(Continued) • Threats •Financial • Employees gain seniority and require wage increases • Predatory actions by competitors in price war • Human Resources • Donald Burr’s large ego • Understaffing/overworking creates unhappiness • Low employee morale • Employees desired unionization like other airlines
- 25. SWOT ANALYSIS(Continued) • ExternalConditions • Fuel price increases • Recession • Accident/Crash
Editor's Notes
- #7 Precepts were a check and balance against which people could test their ideas