Thursday, May 10, 2001

A Brief History of People Express

People Express unofficially began on January 7, 1980 when Don Burr submitted his resignation from Texas Air to Frank Lorenzo. He, along with his secretary Melrose Dawsey left to form their own carrier. Almost immediately, they were joined by Gerry Gitner, another associate from Texas Air. Using their own cash, they began making plans for the new carrier and by fall had come up with the name People Express. Burr was quite interested in creating a positive working environment, one where people would be motivated as owners, not just employees. All employees would be required take stock in the company as part of their compensation, and everyone (including pilots and executives) would be cross-utilized to help keep costs down. There would be no secretaries or assistants -- everyone would be a manager.

Plans were made to locate the carrier at Newark Airport, long underutilized despite its close proximity to New York City. The Port Authority was willing to lease the entire North Terminal, which had been abandoned for many years. Originally designed to be converted into a maintenance hanger, it had remained in its terminal configuration after being abandoned in the early 70's. A wall and windows where the main doors would have been, and room was left for "nose bays".

Two concourses extended out from the main building, however they were at ramp level: there were no jetways and few windows. Rather than paying for office space off the airport, Burr and his staff moved into the upper level of the terminal.

By the time the terminal lease was complete, the initial stock offering (3 million shares) had brought in $25M, far more than anyone had expected. Shortly thereafter, arrangements were made to acquire 17 737s from Lufthansa, the first being delivered in late March 1981. Service started on April 30, 1981 to Buffalo, NY, Columbus, OH and Norfolk, VA.

People Express continued to gradually grow up for the next two years until mid 1983, when their growth exploded. Transatlantic services were inaugurated to LGW using a leased Boeing 747. Also in 1983, 50 Boeing 727-200's were purchased and 4 new cities were added to the route system, for a total of 22 cities.

In 1984, growth escalated and another 10 cities were opened. The first three of eight Boeing 747's were added to the fleet. Transcontinental service was started to LAX and OAK. The last of the remaining 747's were delivered in July 1986.

Back in 1981, People Express had about 250 employees; by 1984 they had grown to 4,000 employees and over 70 aircraft.

An intern program had been created to recruit Flight Engineers, and Customer Service Representatives for inflight service. While many of the existing employees were college graduates, the intern program was specifically designed to attract people already holding a degree. This was later expanded to include part-time interns to staff check-in and boarding gates in both Newark and the outstations. Part-time interns were expected to be full-time college students with a 2.5/4.0 grade point average, while full time interns were expected to have at least 60 hours towards a Bachelor's degree. Interns who were qualified for inflight service or as flight engineers were expected to have a college degree. The intern program possibly created the most educated employee group of the airline industry.

As PE expanded and grew into the nation's fifth largest airline, it became clear that the management infrastructure had to be realigned to reattain the close "family" atmosphere that had been largely credited for past successes.

At Newark, Operational Groups of 300 managers were formed in order to provide the basic support structure. Additionally, each outstation would work with specific Ops Group. Each Ops Group functioned in essence as a "mini-airline" responsible for its own scheduling, manning and operating of aircraft, gates, and check-in counters, for the recruiting and training effort, and most importantly, for providing direction and leadership to the interns assigned with their Ops Group. Core functions such as dispatch and revenue accounting continued to support all of the airline, although the cross-utilized individuals working in those areas also belonged to an Ops Group.

People Express maintained an operating cost of about $0.05/ASM through the end, with an average yield of $0.072/ASM in 1985. Yet as revenues grew, profits shrank:

1983 - Net profit $10M on $287M revenue 1984 - Net profit $2M on $561M revenue

1985 - Net loss of $28M on $977M revenue 1986 - Projected loss of $200M on over $1B revenue (actual loss unknown)

A major part of the losses was related to Don Burr's allowing PE to lose its niche carrier identity. The growth that occurred with People's route system and fleet in 1984 and 1985 almost seemed to go unchecked. Fare battles and effective yield management by the "established" carriers took its toll as well and as People continued to expand it lost market share to the majors.


In the midst of a full fare war with the majors, People Express again defied logic and went on a spending spree.

In January 1985, PE committed to build Terminal C at Newark for an estimated $175M to be paid over 25 years. The new terminal was planned to open in late 1986 (and actually opened in early 1988), at which time the North Terminal would again be abandoned. A far cry from the North Terminal, it was planned to have 41 gates, jetways, and a customs / immigration facility.

In August 1985, employees at Denver based Frontier Airlines were attempting to obtain an 80% stake in their company for just over $210M. Frank Lorenzo jumped in and upped the offer to over $270M, and later $290M. While Frontier's unions shuddered at the thought of working for Lorenzo, Don Burr saw an opportunity. Not only could People Express gain a foothold outside the east coast, but Frontier had a reservation system and an established frequent flyer program. Burr's final offer was more than $300M, a good part of it in cash
plus concessions from Frontier's unions. While the PE shareholders approved the deal, People spent millions out of their own accounts to make up for continuing losses at Frontier. At the time, Frontier served 55 cities with a fleet of 42 aircraft, mostly 737's and DC-9's.

In February 1986, midwest regional Britt Airways was purchased for $40M in a leveraged buyout. Britt had a system of routes feeding Chicago and St. Louis from cities in Illinois, Indiana, Wisconsin, Iowa, Missouri and Kentucky. Britt operated 49 aircraft: 11 Beech 99, 18 Fairchild Metro II, 14 Fairchild F-27 and 2 BAC-111

In April 1986, already bankrupt regional carrier Provincetown-Boston Airways (PBA) was acquired for less than $2M. PE also agreed to pay $25M to secured creditors, and provided about $700,000 in cash to keep operations going. At the time, PBA was flying routes in the northeast from Boston, plus a southern network to most Florida cities. Included in PBA's fleet of 52 aircraft were several Martin 404's and DC-3's.

Frontier was not healthy before the buyout, and continued to lose millions under Burr's leadership. United and Continental stepped up the battle that was already underway on the east coast, and a fare war erupted in Denver. People Express was now clearly in trouble -- to finance the buyout, People had doubled its debt to equity ratio to 2.7-1, with outstanding debt of more than $500M. After pumping millions into Frontier to keep it running, cash reserves were down to $15M in March 1986, and short-term debt was skyrocketing. PE had interest liabilities of $10M in 1983 and $37M in 1984; in 1985, interest expenses climbed to $60M. A sale of equipment trust certificates brought in $115M in April 1986 to reduce the 1986 short-term debt to about $2M.

In mid-June 1986, Don Burr, under pressure from PE's board of directors, reluctantly announced that part or all of People Express, was up for sale. Both United and Lorenzo stepped up the plate: United looking only to pick up Frontier, while Lorenzo was looking at the entire People Express operation for about $250M (the exact figure was not disclosed). While Burr was in favor of the Texas Air offer, the PE Board rejected Lorenzo in favor of United's bid. United offered about $140M for Frontier, but later retracted the
bid when United's pilots rejected the contract proposal extended to the Frontier pilots.

When the United deal fell apart, PE made the decision that they would no longer be able to keep pumping cash into Frontier. On August 24, Frontier ceased operations, leaving thousands stranded and declared Chapter 11 bankruptcy on August 28.

Frank Lorenzo again approached Burr and offered to purchase People Express, but now offered about $125M, less than half of what was offered just a few weeks before and less than half of what Burr bid for Frontier just a year earlier. Faced with certain bankruptcy and thousands of People's people being out of work, Burr had little choice but to accept Lorenzo's offer.

Just three weeks after the Frontier shutdown, the agreement to sell People Express to Texas Air was announced on September 15, 1986. Texas Air formally approved the deal on December 31, and plans were announced for the full integration of not only People Express, but also New York Air and four commuter carriers into Continental on February 1, 1987.

The ensuing merger is another story altogether -- the North Terminal was eventually closed and all flights moved to Terminal B, where Continental and sister carrier Eastern were housed (some shuttle-type flights continued to operate out of the North Terminal until temporary gate space could be completed in Terminal B). Just as the kinks were finally being worked out, Terminal C opened in 1988.

The name People Express, Inc. continued to exist on paper for several years, as a way to further shield Continental and Texas Air from the merger related losses. Despite popular rumor, the carrier never declared bankruptcy before the merger. While Texas Air seriously considered the move, it was not taken until Continental's most recent bankruptcy in December 1990, when all of Texas Air / Continental Air Holdings' domestic subsidiaries filed for bankrupcy. When they restructured in 1993, all of the subsidiaries were finally merged into Continental.

Cities Served (Year End)



April 30, 1981: BUF, CMH, ORF
December 1981: BWI, BOS, JAX, SYR, SRQ, PBI
December 1982: BDL, DCA, BTV, MLB, IAD, PIT
December 1983: LGW, ACY, PWM, PIE, HOU,
December 1984: LAX, OAK, DTW, ORD, MIA, MSP, CLE
December 1985: SFO, GSO, DFW, ROC, CVG, DEN, RSW, MCO, RDU, STL, DAY, ALB, FLL, MSY,CAE, CLT, YMX, BHM, SAN, ATL, BRU
December 1986: HNL

Service to IAD and BNA ended "sometime" in 1986.

In January 1987, service was discontinued to HOU, DEN and BRU.



While PE's operating certificate was eventually retired, and assets were all moved onto CO's balance sheets, the actual corporate entity continued to exist. Even when CO declared bankruptcy, for some reason PE didn't (not having any remaining liabilities or assets helped). When CO emerged from bankruptcy, the corporate entity known as People Express Airlines, Inc. was renamed Continental Air Holdings, Inc.


So, in many ways, Continental Airlines is actually People Express. The notion of the EWR hub envisioned by Don Burr and his band of renegades wasn't a backward idea after all. It just took a while for those ideas to take hold.

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