The fastest-growing company in the history of aviation has a problem. It has designed a product so popular that it can't satisfy demand.
The fastest-growing company in the history of aviation has a problem. It has designed a product so popular that it can't satisfy demand.
Candee Brock is being cross-utilized today. Wearing the brown and tan uniform of People Express Airlines Inc., she is checking bags for passengers leaving the North Terminal of Newark International Airport. Between tickets she talks about a day that changed her life.
March 25, 1981, was an unusually pleasant day in Buffalo, after a harsh, lingering winter. Candee thought she had things pretty well figured out. She had just quit her job as a dental hygienist and was enrolled to study business management at State University College at Buffalo. She was at home reading the Buffalo Courier-xpress and saw an ad announcing great opportunities as a customer-service manager for People Express "It seemed like it was written just for me," she says.
Candee drove to the Sheraton Inn Buffalo East, where the interviews were being held, took a look at the mob of some 12,000 applicants, and drove back home. "They'll never notice me in all those people," she recalls thinking. She considered doing some studying or maybe some errands around the neighborhood, but the ad wouldn't leave her alone. She drove back to the interviews.
On April 2, Candee arrived in Newark, N.J., and checked into the Holiday Inn North, where she would live for a month while she was in training. "When I first got to the People Express office," she says, "I found an empty terminal with garbage cans lying around. There were no planes; you had to imagine them flying in. I said to myself, 'We're going to land people here?' But a month later, I was at the check-in counter. The garbage was gone, the planes were here, and there was wallpaper on the walls, even if it was still wet."
When she is not checking baggage, Candee is team manager for 54 people in the accounts-payable and accounts-receivable section of the accounting department. She works 10 to 12 hours a day, five or six days a week, and says she would work more. She makes $24,000 a year and owns 8,400 shares of People Express stock, trading over-the-counter at $18.50 a share at press time. Candee is 25.
"I've grown a lot in two years," she says "My job has given me more confidence in every area of my life. Now I'm involved in the day-to-day operations of a very successful airline."
Indeed, "very successful" may beggar the truth. By all accounts, People Express is, quite simply, the fastest-growing airline in the history of aviation, a happy fact that flight attendants will sometimes announce at the end of a flight. Says John J. Dickerson Jr., general manager of New Jersey airports: "Fantastic is even an understatement. Their growth is a phenomenon all its own."
In one furious acceleration akin to the lift-off thrust of a Boeing 737, People Express rose, in just two and a half years, from relative obscurity to international prominence. From 250 to more than 3,000 full- and part-time employees. From three planes serving 3 cities with 24 flights a day to a fleet of 22 Boeing 737s, 10 Boeing 727s, and one 747 making 264 nonstop flights daily to 20 destinations, including London. From a loss of $9.2 million, including start-up costs, on $38.4 million in revenues to earnings of $1 million on revenues of $138.7 million in 1982. And the company recently reported revenues of $116 million and net income of $6.3 million for the first six months of 1983. People Express has carried some 10 million passengers and is currently the largest single airport operation in the New York metropolitan area.
And it has done all this despite a severe economic recession, withering price wars, a national air-traffic-controllers strike, and otherwise dismal conditions in the airline industry that have included bankruptcies and widespread operating losses.
"We have a unique problem," president and founder Donald Burr recently told a group of college educators. "We've designed a product which is so popular we can't satisfy the demand for it."
That product is a seat on an aircraft that flies between Newark and some other major city on the East Coast (and London), that is frequently available, and that is, above all, cheap. For example, the well-known Eastern Air Lines Inc. Shuttle between New York and Boston offers 15 flights a day during the week for $57 during peak hours and $42 off peak. The People Express shuttle between Newark and Boston offers 20 flights a day for $38 peak and $25 off peak. People Express passengers are ticketed on board or pay in advance through a travel agent. They pay to have baggage checked and for snacks and drinks on board. There are no free magazines, either. The most telling measure of the popularity of the Spartan treatment is called the "load factor." The load factor expresses with a percentage that portion of all available seats in any given time period that were actually filled by paying customers. In July, People Express's load factor was a stunning 83.6%, compared to an average load factor of 60% for the airline industry. "We believe," Burr says, "that if you respect people and give them a good deal, they'll use the hell out of it."
But Burr also says, "Being a commercial success is not enough. It's a derivative of doing other things well. The whole purpose of creating this enterprise in the first place was to create an environment which would enable and empower employees to release their creative energies." For Burr, the interplay of marketing, scheduling, and cost control has a beauty all its own, but the personal fulfillment of individual employees through the company's "people structure" offers something more. "People," he says, "are the glory and frustration of People Express."
Sometime during his childhood in South Windsor, Conn., Don Burr, now 42, discovered three truths about himself that he would pursue for the rest of his life. Whenever he did something he liked, Burr noticed, he invariably did well at it. And, resting on the same ledge of raw self-awareness, he found two other items of interest. For one thing, he liked planes. Every Sunday he badgered his parents into driving him to Hartford/Brainard Airport. There he would lose himself in the wide-eyed splendor of man-made flight. For another, he liked business.
"I used to go into the candy store," he says, "and wonder how that guy ran that store. I thought I could never do that -- run a store, order all those things. Kids would talk about Mickey Mantle hitting home runs. I thought that was great how that guy ran that store. I've always been like that. I've always wanted to know how you put those things together."
After graduating from Harvard Business School in 1965, Burr became a securities analyst for National Aviation Corp., a closed-end investment company based in New York City that specializes in airline and aerospace securities and venture capital. Six years later, he was elected president of the company. At 31, Burr was already an expert in the economics and financial strategies of starting and running a commercial airline.
One of the airlines in the National Aviation portfolio was Houston-based Texas International Airlines Inc., a regional-service airline that, according to Burr, had a long history of mismanagement and had a huge working-capital deficit. Texas International asked Burr if he would help bail it out, and he accepted. Burr was getting closer to his own candy store.
Burr's careful study of the airline industry as a securities analyst didn't fail him. He recalled that during the early 1960s, Pacific Southwest Airlines in California had used low-price fares as a marketing strategy to increase traffic. In 1976, Burr, faced with a similar problem, dusted off the idea, dressed it up a bit, and introduced "Mr. Peanut" as the embodiment of Texas International's new, low-cost "peanuts fares" between selected cities. "There were lots of arguments inside Texas International about peanuts fares," remembers Burr, "and somebody told me later that they burned Mr. Peanut in effigy."
But the plan worked. As traffic rose so did profits, and so did Burr. In 1976, he was made chief operating officer and in June 1979, president. Six months later, he resigned. Mr. Peanut would soon find a new identity in Newark.
When Burr left Texas International, he had no specific direction in mind. Congress had passed the Airline Deregulation Act of 1978, which freed existing airlines to compete aggressively in both route selection and pricing, and encouraged new entrants. Burr sensed that the end of 40 years of control by the Civil Aeronautics Board (CAB) created an historic moment exactly when he was looking for a new challenge. At the same time, he was disturbed by a kind of free-floating, and growing, dissatisfaction with what he viewed as typical corporate attitudes toward employees. "Most organizations frustrate people who really want to work," he says. "They control them, and watch them, and check up on them. They subsume the individual. They consider them guilty until proven innocent."
At first, he waited for greatness to be thrust upon him. After all, he was only 38 and he had already been president of two companies. He was well known in the industry and well connected on Wall Street. "I was thinking that I'll get some calls for sure. There must be a lot of people out there who want somebody like me to run their airlines. But did I get any substantive calls? My mother called and that's pretty much it. That's when I realized that the world really didn't care whether I got up in the morning; it didn't give a damn. But is that bad, is that immoral? No, that's life. That's the way it is. No one would have me, so I had to start my own."
When friends or business associates talk about Donald Burr today, they invariably say, "He could've been a preacher." They don't say "minister," or "reverend," or "clergy." They say "preacher" because it conveys exactly the right sense of sweating-in-a-hot-tent, evangelical fervor that makes the pulse race. Burr works hard when he talks. He paces; he sits; he stands, he throws out his arms; he condemns and praises, implores and jokes. He moves effortlessly from the blunt, almost slang, of a working-class neighborhood to the polished diction of the corporate boardroom. And all the while, there never seems to be any doubt that he can do exactly what he says he will.
Little wonder, then, that Gerald L. Gitner, his senior vice-president of planning and marketing at Texas International, and Melrose Dawsey, Burr's executive assistant, both risked their careers by resigning a day after Burr. They didn't know what they could earn, if anything, or what they would do, but it didn't matter Burr had set out on a great adventure and they wanted to go along.
This band of fellow travelers that Burr remembers as "three lonely people standing on a street corner" soon moved inside when they took space in a "rent-an-office place of the type used by fly-by-nighters" in Houston. During the day, they read trade journals and made calls to friends in the airline industry, trying to unearth an appropriate opportunity for themselves. Between calls, they passed the time by daydreaming out loud about starting a new airline: If you could, how would you organize it? Where would you get the money? What kinds of planes would you use? What airports, and, wouldn't it be nice? Then one day, imperceptibly, daydreaming turned to planning and commitment. It would be a candy store on a grand scale. Burr sold off his car, his house, two condominiums in Park City, Utah, and one in Vermont, his Texas International stock, and he drained his savings so he could put $350,000 into the new venture. Gitner invested $175,000, and Dawsey, $20,000. On April 7, 1980, they incorporated People Express, a new commercial airline whose very name, in Burr's opinion, put first things first.
The next year was a breathless, nonstop, near-miracle of activity: raising money, finding planes, finding an airport, preparing documents, recruiting and training personnel, selecting routes, and working out schedules. Three people could never have done it, but, as Burr spread the word, more of his Texas International colleagues began signing up. There was Harold "Hap" Pareti, 35, his former legal counsel, now managing officer for flight operations and legal and government affairs; Lori Dubose, 31, managing officer who is in charge of recruitment and training and in-flight service; and Bob McAdoo, 38, his former controller and now chief financial officer. By December of 1980, some 15 former Texas International executives and managers had joined the People Express startup team, and Burr, at 39, was the oldest member.
In July, People Express became the first airline to apply to the CAB for permission to form a new airline since the passage of the 1978 Airline Deregulation Act. Although the 200-page required document filed with the CAB stated that the company intended to raise roughly $5 million and lease a few planes to fly out of Newark ontil it had made enough money to buy planes, Burr had already begun work on a larger concept.
People Express chose to fly its planes in a configuration known as the "hub and spoke." All flights would make round trips between a single point (the "spokes") and a single terminal (the "hub"). "Among other advantages," Burr says, "a good hub-and-spoke operation is like a fortress because you can control the traffic at that terminal and shut out competition." But with only three leased planes as outlined to the CAB, People Express could hardly boast of being impregnable. Burr wanted to establish a large and immediate presence in the marketplace, and it would cost a lot more than $5 million. Fortunately, in August 1980, Bill Hambrecht of Hambrecht & Quist, the San Francisco -- based investment firm, took Burr to lunch at the University Club in New York City.
Hambrecht was eager to meet Don Burr. He had heard about Burr's plans through a mutual friend and had already done some research on his own. Burr, on his side, intended to ask Hambrecht to take People Express public immediately even though no airline had ever gone public to raise start-up money. They lunched amiably for about 45 minutes, swapping stories about finance and Wall Street. Then Hambrecht announced that he had to leave for an appointment, and Burr choked on his food. "I was horrified," Burr says. "We'd been doing all this talking, and I hadn't even described my proposal. So I blurted it out. He asked me a few questions and agreed. I nearly fell off my chair." Says Hambrecht, "The whole thing made a lot of sense to me -- fast turnaround, low fares. I've always felt that in a climate of deregulation, low-cost newcomers have a great opportunity because the old companies usually hate to give away their price monopoly, they're slow to adjust to the new competition." Burr was ecstatic. "When I walked out of there," he says, "I could've touched the moon."
Later that month, Burr showed up at Newark International Airport for the first time. Although Burr had designated Newark as the People Express airport, he had only read that space was available; the actual details were far from certain. "I didn't know Newark from my elbow," he says. "Actually, I kinda liked San Francisco."
John J. Dickerson Jr., the general manager of New Jersey airports, had already heard the story many times before Burr ever knocked on his door. Deregulation had spawned a small army of would-be airline operators Some had only great ambitions and never showed up, but some had great ambitions and planes and never showed up. "We were almost going to put up a scorecard," Dickerson says. One operator had even gotten so far as to move into the office Burr now occupies. He went bust so fast that he left his furniture behind.
Dickerson explained that the first airport terminal constructed by the Port Authority of New York and New jersey, the North Terminal, had been largely vacant since 1973, when the airlines quartered there moved to two newly built terminals. When he saw it, Burr's normal effervescence temporarily went flat. "It was a ghost town," he says. "What didn't fall on your head bit you in the ankle." But it was right in the heart of the brisk airline traffic of the New York/Newark metropolitan area. Burr said he would take it.
No sooner had Burr left Dickerson's office than he was hit by a crushing anxiety attack, and he rushed to a phone booth to call Bill Hambrecht. "I know it was foolish," Burr says, "but everything hit me all at once. There I was at Newark airport renting space. I mean, I was really starting an airline. I guess I panicked about the money." "We shook hands," Hambrecht told him. "We'll do our best."
On October 24, 1980, the CAB granted People Express its certificate to operate as an interstate airline. A few weeks later, the company received approximately $24 million from the successful Hambrecht & Quist financing of 3 million shares at $8.50 a share. The timing couldn't have been better. Burr had just read in a trade journal that Lufthansa, the German airline, wanted to sell a fleet of 22 used Boeing 737s, and he immediately sent Hap Pareti to Frankfurt to negotiate terms. Pareti got 17 of the planes for around $70 million, or $4.1 million per plane, at a time when a new, deluxe Boeing 737 cost as much as $13 million. Lufthansa also agreed to repaint and remodel the planes according to People Express specifications. According to the terms of the agreement, People Express would lose a mandatory $6-million deposit if, for any reason, it failed to take delivery of any one of the planes "When we got the Hambrecht financing and the 17 planes," Burr says, "I knew the sky was the limit."
Members of the start-up team spent their last night in Houston on New Year's Eve, which they celebrated by holding a long meeting on compensation policies Then the great exodus to Newark began in earnest. By January 7, 1981, the crew members had checked into the Howard Johnson Motor Lodge near the airport, where most of them would live for the next eight months. The next day, everyone drove over to the new corporate headquarters. It was a cold and dreary day, and life at the office wasn't very plush.
Not much had changed since Burr first walked the grounds with Dickerson. Don Hoydu, a managing officer who served as an advance-man for the group, had managed to furnish a small, second-story corner of the terminal with telephones and a few desks and chairs. The group's christening act was the immediate purchase of several portable heaters to supply that which the building lacked. Then they turned their attention to the rest of the terminal. George Rayl, 35, the third pilot hired by the company, remembers the scene well: "Somebody moved out of there seven years earlier, and they were in a big hurry. There were boxes and junk all over and people running around everywhere. It took two days just to scrape the dirt off the windows.
On April 30, 1981, three Boeing 737s bearing People Express's double-profile trademark accepted passengers bound for Columbus, Ohio; Buffalo; and, Norfolk, Va. George Rayl, who had just moved his wife and three children from California to Newark in a 24-foot U-Haul, was at the controls of the Columbus flight with 68 people on board. "There I was, a captain," he says, "something I'd always dreamed about. I couldn't have done it that fast anywhere else." Don Burr watched him take off, standing there transfixed in his white shirt, tie, and light gray business suit, working his face in wonder like a kid suddenly cut loose in a candy store.
For the price of their tickets, major commercial airlines generally offer inter-airline reservations support, reservation agents at the terminal, two classes of service, free baggage check-in and transfer, free soft drinks and meals, and free magazines. People Express looks at air travel from a radically different perspective in which all of the above are irrelevant. "It's a commodity business," says Burr, "like chicken parts or steel." Burr reasons that, given safety, a convenient flight schedule, and clean aircraft, the one thing passengers care most about is price.
"Our strategy," Burr says, "is to knock the price down so low that it fills the plane." So low, in fact, that flying People Express will often be cheaper than driving or taking a bus. Not only will habitual airline travelers panic for a seat, but folks who ordinarily would have used another form of transportation won't be able to control themselves either. "Fly smart," People Express ads urge travelers. If there is any doubt that he is on the right track, Burr simply points to the incontrovertible evidence of the 83.6% load factor.
Of course, popularity doesn't necessarily mean profitability. Many a plane has taken off packed to the baggage compartments only to land in red ink. The load factor is just one of three variables that must be handled with surgical dexterity if the airline is to make a profit. The other variables are revenue per passenger mile and costs per available seat mile, both of which resemble the revenue and cost-of-goods-sold components in a manufacturing company. The lower the costs, the less an airline has to charge the customer, and the lower its break-even load factor. In 1982, People Express's cost per available sea mile of 5 cents was the lowest in the industry. Thus, the company could maintain its deep discount pricing charging travelers as little as 8 cents per passenger mile and still make money. At those levels only 60% of all available seats had to be filled to break even.
It is noteworthy that during the first six months of 1983, the actual load factor had risen faster than the break-even load factor because roughly 95% of every sales dollar at load factors above break even goes to the bottom line. "Cuys like Eastern and Delta," McAdoo says, "if they're in the same market elbow-to-elbow against us trying to match our standard fare of 8 cents a mile, have to be absolutely full to break even. They've got to sell every seat or they'll lose their shirts, because it costs them 8 cents a mile to produce a seat. And somebody like US Air, if they're matching that 8 cents fare of ours can sell every seat and still not make it, because they can't cover their costs."
When Burr talks about the company's extraordinary success in controlling costs, he attributes it first to a state of mind, an attitude shared by everyone in the company that rejects waste, and secondarily to specific operating tactics. After years of experience, he explains, it is relatively easy to predict that by tearing out the first-class and galley sections on a 737, People Express could increase the number of coach-class seats from 90 to 118. Or that by innovative scheduling, it could keep the planes in the air longer -- 10.4 hours per plane per day versus an industry average of 7.12 hours per day. Or that by eliminating unnecessary free services it would save money. "But without the wholehearted, personal commitment of everyone involved," he says, "you could do all of those things all day and still fall on your face. That's why we thought longer and harder about building our people structure here than we did anything else."
As hokey as the term may sound, the socalled people structure has the drawing power of last call at a Saturday night beer blast. When People Express interviewers come to town looking for customer-service managers, hundreds, even thousands, of people show up. Only one applicant out of every hundred is hired. "The hiring process is extremely important," Lori Dubose says, "and it gets a lot of attention."
People Express hires for three categories: flight managers, another way of saying pilots; maintenance managers, who concern themselves with the physical well-being of aircraft, and customer-service managers, who do just about everything else, including such in-flight functions as baggage check-in and reservations and such staff functions as accounting. It should be noted, however, that with the company's program of cross-utilization, no employee does the same job all of the time. Every applicant in any category must first survive the jaws of an extensive screening before he or she is even offered the chance to attend training classes, which is not to be confused with a job offer, which it isn't.
Recruiters spend about five hours evaluating each individual's qualifications. They are looking for the right People Express "type," and they know exactly what they want. Seen in groups of five or six at the Holiday Inn North or the Howard Johnson Motor Lodge, customer-service managers-in-training shine with a cleancut, collegiate exuberance and a pleasant, if predictable, homogeneity. According to Dubose, this collage of personal attributes creates a memorable atmosphere of enthusiasm, confidence, and competence that keeps passengers flying People Express.
Hoards of people fall all over themselves for a chance to get grilled to a turn and live in a Holiday Inn during five weeks of training. If they win, they win big. By the end of their first year, customer-service managers draw a base pay of $19,500, but since the company offers not one, but two, profitsharing plans, they can receive an additional 15% of base pay. And while they are busy filling out deposit slips, they are protected by 100% medical and dental coverage. "We just didn't want them to have to worry about it," Burr says.
Then, of course, there is the stock. Every employee is required to own stock in People Express. Customer-service managers must purchase, as a condition of their employment, 100 shares at prices far below the market. If they aren't able to afford it, the company gives them an interest-free loan Since additional buying opportunities are made available throughout the year, employees generally end up with a significant investment. According to Dawsey, each employee owns an average of 2,500 shares worth about $46,000 at today's prices. "We're not sitting around here counting roses," asserts Burr. "This is capitalism. People are getting rich here. There are millionaires walking around here and tons of 24- and 25-year-olds worth $75,000, $100,000, $200,000. Tons of 'em. The only way I know to wealth in the long term is to own a piece of something and build it."
The early dreams of growth and wealth were sweet and full, and exceedingly fragile. Only three months after the first flights took off, it suddenly appeared that Burr's "piece of something" would never be anything more than a piece of wreckage People Express faced ruin. On August 3,1981, members of the Professional Air Traffic Controllers Organization (PATCO) went out on strike. The Federal Aviation Administration sharply reduced flights at 22 airports throughout the country, including Newark People Express, which had seven planes and 35 departures a day from Newark, was cut back a full 35%. Burr estimates that from August to October, the company lost $6 million from canceled trips and low load factors. In addition, the company was rapidly reaching the point at which it could no longer live up to the conditions of its agreement with Lufthansa. If it didn't have the cash to continue buying planes, the company would lose the $6-million deposit with Lufthansa. "We were bleeding at a terrific rate," says Burr. "It was gun-to-head time. We were going out of business."
Burr and his colleagues decided on a desperate strategy. They would fly planes out of Newark to Buffalo, Columbus, and Baltimore, all uncongested and unrestricted airports. Then they hoped to fly back and forth to Sarasota and West Palm Beach, Fla., bypassing Newark. But the company's research had failed to indicate whether there was much of a market for such flights. When the planes took off on October 25, no one even knew if there would be enough passengers to pay for the gas. What is more, this shot-in-the-dark meant the company had to abandon its original hub-and-spoke operation, which in turn meant that new support services, such as maintenance and commissary supply, had to be established. "We had to bet the company a second time," Burr says. "Who'd ever heard of a 'bypass' strategy? Nobody had ever done that before. We had to create a whole new airline and we had to do it overnight."
McAdoo says the company chose south Florida on the chance that it was the one destination that, with its leisure-time attraction, might prove especially sensitive to price. "At $59," he says, "we thought it was cheap enough that people might take trips out of the clear blue saying, 'Why shouldn't I go to Florida?' or 'Why shouldn't I go twice instead of once, like I usually do?"
Once again, People Express bet right. People did ask those questions and they did fly. The sunshine and warm waters of south Florida were too much to pass up in the winter of 1981-82. The planes started out 60% full but quickly built up to a load factor of 85% on many of the routes. And out of it, the company squeezed enough money to stay alive. As flight restrictions were lifted, People Express gradually returned to its original blueprint.
To Burr, building an enterprise is building the people within it. In his view, the people are the enterprise Most companies, he argues, organize themselves around structures and policies that force employees to serve the company. The traditional, corporate pyramid of authority, for example, with its ascending layers of supervisory control, smothers individual initiative. Many companies contain the unspoken prejudice that employees are unreliable or, as Burr puts it, "guilty until proven innocent." Nor does this attitude go unnoticed by the employee. In time, it spawns indifference, disaffection, even belligerence. Better, Burr reasoned as far back as the dream-time days in Houston, that a company be organized to serve each employee individually by giving ownership, direct participation in its affairs, the freedom to fashion a personal contribution, and an opportunity for personal growth. People Express is an experiment to that end, an attempt to create an environment in which the usual distinctions between the company and the employee are no longer relevant, because the two have become one.
In addition to ownership, the most conspicuous features of the People Express "environment" include a relatively "flat" management configuration, the use of teams, self-management, and cross-utilization. According to Richard Hackman, a professor of organizational behavior and psychology at Yale University and a consaltant to People Express, the company is traveling in uncharted territory: "Other firms have done parts of what they're doing, but the complete package is unique. They're trying to invent a new way of organizing and managing the human resources of the firm."
Work at People Express is first separated into four "umbrella" categories: people, finance and administration, marketing, and operations, and then into 13 specific functions, as opposed to the "staff" functions, such as accounting, administration, and scheduling necessary to run the company. Although everyone at People Express is a "manager," there are distinct gradations in authority and leadership. Six managing officers provide general direction and leadership in each functional area. Team managers, a more recent addition to the People Express lineup, serve as liaisons between the teams working in any given area and the managing officers and general managers. Customer-service managers, flight managers, and maintenance managers are expected to manage themselves by setting their own goals in keeping with the company's professed objective. The buck stops at Burr.
People Express has not tried to eliminate supervisory intervention but rather to minimize it. Further, Burr says, they have redefined it. Effective managers, he says, offer direction and make sure that the right information and tools are available to get a job done. They do not dictate methods nor do they police efforts. Actual performance is a matter of individual creativity. Burr points out, however, that People Express is not built on anarchy. The direction of the company is not up for grabs. "If you don't agree with that direction," he says, "you shouldn't be here."
Although it had existed in the collective mind of the start-up team, People Express's direction wasn't written down until December 1981. Eight months after the first flights, Burr convened a meeting of the team in the former VIP Lounge just off the main concourse in the North Terminal. He was concerned that the company's objectives might be lost among the daily distractions of a rapidly growing business. The meeting was recalled by everyone involved as a day of intense, argumentative debate. Burr asked each member in turn for his or her idea of what People Express was trying to accomplish. He wrote the answers on large sheets of paper and taped them to the walls. "They worked hard," he says. "I mean they put their blood on those walls." The team emerged with a list of six "precepts" that dedicated the company to "service, growth, and development of people"; becoming the "best provider of air transportation"; the "highest quality of management", becoming a "role model"; "simplicity"; and the "maximization of profits."
To managers at People Express, each precept appears to reveal more amplified verities. For example, Burr will point to the first two precepts and explain that they can guide managers through the puckerbrush of daily affairs: "If it's good for a customer or good for a peer, the choice you want to make in any of the myriad decisions you're faced with each day is probably a good idea. Collectively, the precepts are meant to reveal the very soul of People Express.
The best method he has yet found to translate the precepts into action is by organizing all of the managers into teams of two or three members and by cross-utiliza- tion. Everyone in the company, including the managing officers, are members of a team. This design is thought to foster self-management and a highly productive esprit de corps while at the same time eliminating additional layers of supervisory control. Teams also participate in the decision- and policymaking of the company by electing members to advisory and coordinating councils, which meet with Burr, the managing officers, and the general managers.
Cross-utilization is also considered a vital method of honing the company's competitive edge and an indispensable source of heightened productivity. Every month, a variable portion of each manager's time is devoted to some line function generally outside of his or her primary area of staff responsibility. Thus, Candee Brock, a team manager in accounting, gets to check in baggage, and Bob McAdoo, the managing officer for finance, is frequently seen serving drinks aboard a flight. Hackman, the company's consultant on organizational behavior, sees cross-utilization as a "trade-off." He says it requires more time and money in training, and that even then there are problems in maintaining operational continuity because people are moving into areas in which they are not yet fully expert. "On the other hand," he says, "you get people who really understand the business because they're not penned into a particular function."
If People Express's operating results don't prove the success of the people structure, there are two additional facts that may help. First of all, People Express has no unions. The Air Line Pilots Association International tried twice and failed. There was no interest. "Unions have a place in American business," Hap Pareti says, "but that place exists only where their role is important to protect the employees against actions of an employer who doesn't have the employees' interest in mind. To the extent you structure an organization that literally spends the majority, if not the total, amount of its time dedicated to workingowith its people, you don't need a union." Jack Blake, 33, a former Navy pilot who joined People Express two years ago, says that although he could probably double his $36,000 base salary at another airline, he intends to stay put. "I'm happy where I am," he says. "I've got stock and security. Last year I made captain. With the seniority systems at other airlines, I might never have gotten the chance." Finally, there is the plain fact that during the first quarter of 1983, passenger miles per employee was twice that of the industry average for full year 1982.
But Burr still isn't satisfied. He says the company's people structure is only "60% successful," and points to problems in getting managers involved in the company's decision- and policymaking processes. "It's horribly difficult to give everyone a sense of commitment and participation," he says. "It's an inch-by-inch, every day grinding process. There's no magic, no wands." The organization report prepared in 1982 had already identified several areas that needed improvement, including "meaningful staff work with built-in feedback, clarity about authority and constraints, built-in accountability, individual recognition, and available leadership." The report traced many of the problems to the "small number of designated leaders at People Express" It said. "This leadership element can no longer adequately address the requirements . . . for an entity of nearly 1,000 managers." The subsequent introduction of the team-manager concept to expand the company's leadership is fairly typical of the continuous evolution at work within the people structure. Jim Miller, team manager for management development, says that there are now 85 team managers and that the concept has "worked out very well."
As real as these problems may be, they are difficult to spot from any vantage point outside the company. Once the PATCO crisis had passed, People Express settled into its now familiar pattern of meteoric growth -- buying more planes, hauling ever more passengers, and generally living up to its reputation as a bona fide business phenomenon.
Gerry Gitner, one of the founders and, at the time, president of the company, resigned early in 1982 to become executive vice-president for finance at Pan American World Airways Inc. According to Burr, Gitner "just never got comfortable with the basic direction of the company." "He did not believe," Burr says, "in the strength, the direction of the precepts. He was much more oriented toward routes and planes and tell people what to do, don't get in there and discuss it with them. The competitive business strategy that I doped out, which relies on enabling the individual to do well, he just couldn't get comfortable with. He didn't believe it. He said it was a pipe dream I was disappointed when he left I felt like I had lost a guy that I had tried hard to convince and I didn't make it with him."
Gitner had decided that the job at Pan Am was even more challenging than the presidency of People Express. In a prepared statement, he described his reasons for leaving People Express as follows: "The opportunity was presented to me to participate in a major fashion in the attempted turnaround of a world-class company. The ability to confront new and exciting challenges in this kind of situation was too tempting to resist. I felt that the goal-setting and business plans that I had developed at People Express were on sufficiently firm ground that I could begin my work at Pan Am."
But not even the departure of its president could slow the company's momentum. The fledgling airline was rapidly becoming an institution, so much so that the distinguished investment banking firm of Morgan Stanley & Co. joined Hambrecht & Quist in a second public offering of People Express stock in August 1982. It looked as though the days of corporate derring-do were gone for good. Then Hap Pareti went to London.
The London connection had long been regarded as the jewel of international routes. Although that city was a popular destination in its own right, it also served as a major departure point for more extensive European tours. The load factors on existing flights were already attractive, but People Express thought it might sweeten the pot a little more by offering a one-way ticket priced at $149, well below prevailing prices.
On April 6, 1983, shortly after the CAB approved the company's application, Pareti arrived in London to petition the British Civil Aviation Authority and the Department of Trade. He spent the next two days giving presentations. By the middle of May, Pareti still hadn't gotten any indication of British intent. He was concerned that his application had somehow become entangled in the arguments between the United States and Great Britain over the resolution of the recent Laker Airways bankruptcy. Pareti returned to London to dynamite the log jam.
On May 20, Pareti called a press conference at The American Club in London to announce that even though People Express had not yet received official approval, on May 23 it would begin taking reservations for the first scheduled departures from Newark on May 26. "When I walked into that room," Pareti says, "there must have been 100 people from the press there and 15 microphones sticking out from the speaker's platform and I was thinking to myself, Oh God, Hap, what have you done now?" The next day, the London papers announced the story on their front pages, with The Times proclaiming, "Flying Start for People Express." The news was released simultaneously in the United States, and within 24 hours every flight in both directions was booked solid for the next two months.
The first flight was scheduled to take off from Newarkat 7:15 p.m. on May 26. At 6 o'clock that morning, Pareti, who had been up most of the night with his infant son, Jonathan, finally got the call from the British authorities giving him the approval he needed.
Waiting for the London flight has since become a spectacle in its own right, a rite of passage, a mark of the veteran traveler. The daily drama enacted before the checkin counters on the main concourse of the North Terminal is perhaps the single most convincing demonstration of the magic of People Express's strategy. A thick crowd of well over 200 people churns around in a sea of knapsacks and baggage. Some sleep on bedrolls in the middle of the aisles. A family with three young children is playing cards on a blanket. Another group is sitting cross-legged on the floor eating pizza. When the 6:30 p.m. standby call is announced, all the standbys rise as one and turn reverentially toward the check-in counters as if the Second Coming has just been revealed. The looks of anguished expectancy, the whoops of joy, and the expletives of bad luck alone are worth a trip to Newark.
Some industry analysts worry that People Express may lose control of its growth. That the insatiable need for large numbers of qualified employees and an increasingly complex operation will eventually cause People Express to spring a leak somewhere. But Don Burr isn't worried. A similar concern was recently expressed by 1 of some 35 newly hired flight managers attending an indoctrination meeting, and Burr said, "Look at IBM, they've got 370,000 people. They're very successful, aren't they? Beautifully managed, aren't they? Still an incredible entity, right? I don't see any natural boundaries to our growth." Nor is Bob McAdoo concerned. "It's going to continue to be tough," he says, "but the toughest part is behind us." McAdoo says the company is planning on a long-term growth rate that averages out to adding one and a half to two planes per month and predicts that revenues will "hit a billion dollars in a couple years."
Candee Brock won't be surprised After all, she has always known that she was part of a "very successful airline." But today, sitting here in accounting, she still marvels at the wonder of it all. "It was strange," she says "I wasn't really looking for a job? I was going to college. But there was something about that ad that seemed to say, 'Candee, this might be for you."