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."
