People Express Airlines - Case Study Analysis

People Express airlines: Case Study Analysis

Summary

People Express Airlines was a flight company that appeared out of the blue, became an instant success, giving a lot of competition to rival companies such as Southwest Airlines, etc., and disappeared almost as quickly. It tried a strategy of a uniform low price in the mid –Atlantic states in 1981. They cut costs by adding seats and eliminating all ‘frills’. Low cost flying would compete with driving.

Its founder, Don Burr entered the highly competitive airline market during a time when the economy was slow. He purchased cheap, used airplanes and hired laid off workers who were willing to accept lower, non-union wages. It took off to a great start and even managed to raise $24 million when it went public in 1980. His strategy was to provide service at such low prices that anyone & everyone could purchase flight tickets.

However, around 1985, People’s Airlines started making losses, mainly due to heavy purchases of Boeing 747’s. This laid heavy debt burdens on the company, and by 1986 the company had filed for bankruptcy protection. The company ceased to exist as an airline company during early 1987, after selling its shares to Texas Air Corp.

Case Analysis

Six Percepts for the new organization

• Service and a commitment to the growth and development of its people
• To be the best provider of air transportation
• To provide the highest quality of leadership
• To serve as a role model for other airlines and businesses
• Simplicity
• Maximization of profits

Innovation in human resource strategy

• Minimal hierarchy: The hierarchy system was not much of a deal at people. Everyone was a manager at People.
• Self-management: everyone managed everything on their own, making them independent and less dependent on others.
• Job Rotation: they implemented this cause rotation and cross-utilization was necessary for personal growth.
• Equity Ownership and other compensation
• Recruiting: they would recruit people who are bright, educated, well-groomed, mature, ambitious, creatives, flexible, energetic and hardworking. This made their work culture healthy.

 Innovation in the Product

• Bare-bones Terminals: No tickets counters, the tickets could be booked in the flight itself.
• They cut costs by adding seats & eliminating all frills, i.e., eliminated galleys & first class to increase number of coach seats.
• The airline used a simplified fare structure. All seats on a route were offered at the same price except for slightly-lower "off-peak" fares.
• They aimed solely at getting from point A to point B. This included eliminating free food, drinks & also Check-in luggage. They created more roomy overhead compartments where passengers could store their luggage, saving them time, money & inconvenience of lost luggage.
• The airline did not have any reservation system, passengers could just go and buy tickets on the spot based on vacancy.

What went wrong?

With the intense competition from larger airlines, it became difficult for new carriers to keep their doors open. During this period of time, analysts were predicting at least a third of the new air carriers would be able to stay aloft. However, about 90 percent of these new air carriers were unsuccessful and forced to shut down, including People Express.