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People Express Harvard Case Study

Tue Apr 06, 2004 7:53 am

In one of my management classes we have to do a case study on People Express and Donald Burr.

We have to study the history of PE and then say if their failure was because of the competiton in the airline industry or because of the way Donald Burr set up the company.

Some people say the way he set up People Express and the way he trained his employees to do multiple tasks hurt the company's performance. But I think in the end they just compete against the deep pockets of AA and NW.
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RE: People Express Harvard Case Study

Tue Apr 06, 2004 10:55 am

How about explaining how both contributed? PE exploited the weakness of those carriers, but their expansion without cost controls or yeild management eventually gave AA (the best example) the ability to outprice PE while still maintaining a modest profit using their yield mgt. software. Add training multiple employees for specialized jobs so that they can rotate stations is not a bad idea. IMO, in a fast growing phase, the efficiency of training one person to do one job really well seems to pay off than having the flexibility of have one person be able to do five jobs.
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RE: People Express Harvard Case Study

Tue Apr 06, 2004 10:58 am

Hey man, I did that exact same case study for one of my classes last year.

In some ways it was rather difficult to discuss because many people in the class, in my opinion, were stupid and had no comprehension of anything about the airline industry. We had to read the case study, submit a paper on it, and then participate in a class discussion. This was the SWOT analysis I have based upon that case:


1) Financial:
· Income level high, especially for a new start-up airline.
· One of only 5 airlines to be earning a profit
· Industry leader in terms of having the highest revenue passenger miles per employee, least total cost per available seat mile, the least revenue per passenger mile, and the cheapest fuel costs per available seat mile.
· Huge increase in stock value in a short period of time.

2) Human Resources
· “People” concept, the employees are the company’s best resource
· Policies driven to empower the employees, provide them with a lifelong career, provide a challenging, yet positive work environment
· Partial employee ownership by giving them stock options
· Profit sharing and bonuses tied to company performance

3) Pricing
· Fares ranging 40-75% below competitors

4) Marketing
· Unique advertising strategy to customers.
· Targeting high-density East Coast routes
· High aircraft productivity 10.36 hours per aircraft per day. Aircraft do not make any money parked on the ground

5) Technology
· One fleet type, relatively young, used Boeing 737-100 aircraft. Single aircraft type allows for greater flexibility in scheduling, simplified training and maintenance procedures, and cost savings
· Simple reservations system

6) External Conditions
· Focused operations in Newark at an uncongested airport in the middle of a large population base


1) Financial
· Avoiding an opportunity to bring in additional revenue by accepting cargo shipments

2) Human Resources:
· Unhappy and overworked employees
· Chronic understaffing, reduces productivity and profitability of aircraft
· Unclear management hierarchy to employees
· The “People” concept has idealized by management hasn’t materialized as planned
· Cross-utilization hasn’t led to gains in productivity
· Despite low management ranks; work teams and self governance issues such as advisory committees , councils, and ad hoc committees , somewhat contradict the business model since they act has management and add complexity to the workplace
· Tough recruiting standards

3) Pricing
· Viewing air travel as a commodity is somewhat ahead of its time. Only now in the early 2000’s are people truly viewing air travel as a commodity where price is the deciding factor.
· “Nickel and Diming” for convenience services such as snacks and baggage service. Concept slightly ahead of its time.

4) Marketing
· $3 fee per checked bag, unfavorable to customers
· no interline ticketing or baggage, loss of potential revenue
· no hotel/rental car assistance, loss of potential revenue

5) Technology
· Aircraft: Boeing 737-100, limited range and capacity, not capable of flying nonstop much beyond the Mississippi River from Newark

6) External Conditions
· Suffered loses due to the PATCO strike, forces changes into the route structure of PE


1) Financial:
· Raised large amounts of capital, especially for an airline up-start

2) Human Resources:
· Greater flexibility in workforce due to cross-utilization

3) Pricing
· Able to significantly undercut competitor’s prices

4) Marketing
· Able to stimulate new customers based upon its prices
· Able to capture new customers from other modes of transportation such as driving
· Word-of-mouth advertising

5) Technology
· 3 additional aircraft to be put in service on new routes

6) External Conditions
· Deregulation in the airline industry, eliminating government control of routes and rates. Allows for greater competition among airlines and reduces the barriers to entry into a market


1) Financial:
· As aircraft age, maintenance costs increase.
· As employees gain seniority, wages increase.
· Predatory actions by competitors. The larger competitors could wage a price war use capacity dumping to force losses upon PE

2) Human Resources:
· Understaffing could affect operations
· Low employee morale
· Possible unionization at some point in the future

3) Pricing

4) Marketing
· Possibly expanding too quickly

5) Technology

6) External Conditions:
· Poor winter weather in Newark and northern destinations can greatly affect operations
· Accident / crash could generate negative publicity that could turn against PE, labeling it an unsafe start-up airline
· Increase in fuel prices, either passed on to customers or added to expenses
· National recession
· Cutback in optional travel
· Airline deregulation, maybe unknown questions and uncertainty on the future of the industry

Remember, this case study is only a shapshot in time. The case we discussed was prior to their massive expansion, the situation presented was in 1982 at the height of their financial success and popularity. It was interesting to readt the follow-up on the story of People Express. A lot of the blame was placed on Donald Burr and his ego. Some people feel a certain sense of people when at the head of an airline and can get a little carried away.
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RE: People Express Harvard Case Study

Tue Apr 06, 2004 1:12 pm

There is a book on People Express history as well as a website discussing in detail the history of the airline, do a Google search. I found the site to be very interesting and discusses some the items posted above and probably what your looking for.
They not only had 737-100's but also 727's and 747-100's in their peak years. Most of the 737's came from LH, the 727's from AZ. Most maintence contracted out to Butler Aircraft, other regional co's.
2 level pricing on smaller a/c, 3 on 747's. Usually for EWR-Palm Beach $69-79 off peak, $99 off peak. On some 747's had premium coach/business class. Problem was that TWA, AA, Eastern would then offer walk up off-peak time flights for same prices.
Could pay for flight on the plane! F/a's had a old style mechanical credit card processing machine on a cart for domestic flights.
Never got a sophicated computer system, like AA, other majors did have and update allowing them to create yield management pricing.
Based in EWR, using now demolished North Terminal for HQ and airline terminal.
Did have simple, clever print and a few TV ads. Mainly accented price.
Paid for beverages and snacks, like $.50 for a can of Coke and on international flights, could get a snack or cold food tray for $5-6.
One big problem was overbooking, and that couldn't take ticket to another airline to use (like SWA today). Weather if bad in EWR wrecked havoc with schedules. Was especially hard hit when a hurricane hit along the East coast including the NYC area in 1986 (?) and screwed up people all over, as almost all flights hubed in EWR.
I hope this give you some ideas, I know, as I flew them a couple of times, Florida, from DCA to EWR and when had service to Brussels.
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RE: People Express Harvard Case Study

Tue Apr 06, 2004 1:40 pm

It is very interesting to compare People Express to JetBlue....B6 is as popular now (more so probably) as People Express was at it's prime. B6 definitely learned from the mistakes that People Express made though and hopefully won't have a similar fate!
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