Low-cost carrier airlines have reshaped the world of air travel.
Nowadays, even a penny-pinching university student can buy a ticket for around $70 round trip and go wherever they please.
Even with low-cost airlines' cheap services, full-service carriers are somehow still able to appeal to the same low budget traveler market.
But how might that be you may ask?
How have large carriers like Delta, American, and United
learned to keep up with low-cost airlines in a market where price is such a major decision factor?
Much of this expert revenue and cost management skills is thanks to the creation of PEOPLExpress Airlines.
PEOPLExpress was an ultra-low-cost airline that helped introduce air travel to a new generation of flyers:
ones that had very shallow pockets and liked to save money.
Launched on April 30th, 1981 by former Texas International Airlines executive Donald Burr,
PEOPLExpress began as a startup airline with three secondhand 737 aircraft from Lufthansa.
They served airports mostly overlooked by larger airlines in Buffalo, Norfolk, and Columbus from their hub at Newark.
The services were extremely comparable to unbundled fares on budget airlines today like Spirit or Frontier.
They offered cheap economy class fares to vacation destinations and charged for amenities like checked baggage, food, and drinks.
Passengers paid for their tickets on the flight to save time and were allowed one carry-on and one personal item each.
Any more bags would cost $3 apiece: an equivalent of around $8 in 2020.
A cup of coffee on the flight would cost just 50 cents, which is around $1.30 in 2020.
This "no-frills" service approach gave the airline a reputation as a "backpack airline"
since many passengers tried to save money by stuffing all their belongings into the free baggage allowance.
they were given and refrain from purchasing amenities.
Although PEOPLExpress wasn't generating as much revenue as other airlines
the key in their strategy to making money was keeping their costs as low as possible, especially labor.
They managed labor cost by focusing on three things:
First, much of PEOPLExpress's workforce came from defunct airlines.
They liked to hire airline workers and sometimes outside workers with little-to-no experience.
Second, they structured employees roles so that employees worked multiple jobs,
something they called "cross utilization". Each worker wore many hats.
Third, the airline offered salaries that were lower than other companies.
Instead of higher salaries, they gave the employees stock in the company.
It was actually required for an employee to own stock in the airline for them to work there
and if an employee couldn't buy any, the airline would give them a discount or take a deduction from their future pay.
Little experience, broad roles, and low salaries might seem like a recipe for disaster,
however, that wasn't the case.
Flight crew were known for being friendly and having a positive attitude.
Employees were not unionized and they also had incentives to give the airline a good image
since everyone owned a small part of PEOPLExpress through stock shares.
The low costs enabled the airline to offer the cheapest fares in the country at the time
and increased demand for low fares led the airline to expand rapidly a few months after its start.
The airline was even marketed as the cheapest means of travel with ads claiming that flying PEOPLExpress was cheaper than driving
and in a way, it was!
A trip from Newark to Buffalo could cost as low as $19 on the airline as opposed to a 6-hour drive.
All seats were sold at the same price except on flights at off-peak times.
To give you an idea of how much demand there was for the airline's cheap services,
when people express started flying to Boston from its Newark hub,
the number of people flying between the cities increased from 1.4 million to over 3.8 million!
The airline continued to expand to many airports around the eastern united states
carefully avoiding competition from larger airlines.
They also increased their fleet size by adding more secondhand 737 and
727 aircraft from Braniff Airways and Lufthansa in 1982.
But PEOPLExpress didn't stop there with their expansion. In May 1983,
PEOPLExpress took a huge step as an airline by adding long-haul service from Newark to London Gatwick with a leased 747-200.
A one-way ticket on this route cost as low as $149.
New seating was also introduced on the 747.
In addition to economy class, there was premium class which included better seats and some extra amenities not given to economy class passengers.
Tickets sold out extremely quickly with the introduction of this new route.
The London flights were so popular that people express would add more 747s to its fleet and add service to Brussels, Belgium in 1985.
This aggressive, rapid expansion was benefiting the airline in the short run
with the company raking in a profit of $3.8 million in the second quarter of 1983 according to the New York Times.
It was also the 10th largest airline in the United States.
In 1984, PEOPLExpress started adding big cities
like Chicago, Denver, and Los Angeles into its route network.
This marked a HUGE change in the carrier's business strategy,
since they would now be directly competing with larger airlines, something they had long time avoided.
Carriers like TWA, United, and American now realized that PEOPLExpress was a force to be reckoned with
and if something wasn't done, PEOPLExpress might put them out of business!
So to combat the airline, larger carriers started to match PEOPLExpress's prices.
Competitors offered more flights to their hub airports not only from Newark,
but also from surrounding airports like JFK and La Guardia.
This hurt PEOPLExpress immensely since passengers now had the option of either a basic fair service on PEOPLExpress,
or full service experience with all amenities included on a larger airline for the same price.
But despite PEOPLExpress accumulating competition that was getting hard to handle,
the airline continued its aggressive expansion into more big cities.
In 1985, the decision was made to further increase the airline's influence by acquiring other airlines.
Frontier Airlines was purchased in October,
Brit Airways was bought out in December of the same year,
and in early 1986, the airline acquired Provincetown-Boston Airlines.
This further expanded the airline's reach into the Midwest, The West Coast and Florida.
Of course, those acquisitions were not cheap.
The business also became more complex with the integration of new aircraft maintenance schedules,
the addition of unionized employees, and different business models.
But those weren't the only issues PEOPLExpress faced with the airline acquisitions.
PEOPLExpress acquired what were essentially full service airlines at the time
and the airline had difficulty converting its new customers to the "no frills" way of air travel
In 1986, PEOPLExpress recorded a loss of $58 million.
The airline had so much debt from its acquisitions and over expansion, that it was nicknamed "People's Distress".
In an attempt to fix its financial problems, the airline altered its strategy again by targeting business travelers.
A new first class was introduced on its 747 aircraft and PEOPLExpress started domestic and
transcontinental service with them shortly after its installation.
A frequent-flyer program was also introduced during the same time and the airline started increasing its prices.
However, it was too little too late.
These efforts proved to be futile as the pressure from mounting debts was too much for the airline.
PEOPLExpress finally realized that an innovative employee system and a constant expansion weren't enough to keep the airline afloat.
They tried to sell Frontier to United for quick cash,
but unfortunately the deal fell through and people express entered into its last few months of service.
Frontier Airlines ceased operations in August 1986 and filed for bankruptcy.
A month later, PEOPLExpress was purchased by Texas Air Corporation,
mainly known as Continental Airlines, for $125 million dollars.
Texas Air Corp. assumed all assets and debt of PEOPLExpress.
The deal was finalized on February 1st, 1987 and both PEOPLExpress and Frontier officially became part of Continental Airlines.
Although Continental had just emerged from bankruptcy themselves,
the acquisition of people express gave them the route structure that was needed to re-establish themselves.
Continental still faced many hardships however.
According to the Chicago Tribune,
the addition of 300 jets with 32 different galleys and 75 seating arrangements caused crew complications.
But Continental was able to successfully emerge from the merger in 1988
using PEOPLExpress's aircraft and the former Newark hub to expand their operations to Europe and the East Coast.
Going back and analyzing the journey of PEOPLExpress,
it's obvious that their over-expansion and the accumulation of massive amounts of debt from acquisitions led to their downfall.
As preached by its owner Don Burr, fast growth had been the backbone to PEOPLExpress's business model.
But perhaps they failed to account for the competition's reaction to their long-term growth.
Analysts agree that PEOPLExpress was doing well until it directly challenged large airlines and
refused to stop its expansion even when advised to slow down.
PEOPLExpress then started losing customers after those decisions and their attempt to appeal to the business market in order to survive failed as well.
But how does this all relate back to larger carriers being able to keep up with today's budget airlines?
Actually, PEOPLExpress helped full service airlines realize the threat that low-cost carriers imposed.
When bigger airlines decided to price match PEOPLExpress on their competitive routes, they invested more into revenue management programs
which helped them able to make more money at lower prices and make the competition stronger.
The influence from PEOPLExpress is part of the reason service on legacy carriers is the way it is today:
charging for checked bags, meals on domestic flights, and other revenue boosting amenities.
Although PEOPLExpress was short-lived, they had a big impact on the industry.
They were able to teach the airline market a few things about how to appeal to a new generation of flyers,
the dangers of over-expansion, and how to save money on operations.
But PEOPLExpress's story doesn't stop there. In February 2012,
there was an attempt to bring the brand of PEOPLExpress back.
The new airline was founded under the same name and implemented the familiar low-cost no-frills business model.
The airline based itself in Newport News, Virginia and flew to Newark with two leased 737-400 aircraft in 2014.
They eventually added more destinations, but they soon ceased operations after a few months
and the owner was even convicted of fraud from filing a false income tax return and misleading investors.
The reason cited was failure to pay passenger facility charges to their Newport News hub airport.
PEOPLExpress hasn't received any revival attempts since then, but it's possible that someone could bring back the brand if they acquired the trademark.
Thanks to the old PEOPLExpress in the 80s, millions of passengers have been able to experience flying for the first time.
They set the standard for a new era of air travel. A time where just about anyone can fly,
but you'll have to pay a little extra if you want to bring your suitcase with you.
Thanks for watching everyone! When researching this airline, I was surprised to discover how much influence they had and what they've taught us going forward.
If any of you guys watching have ever flown PEOPLExpress and would like to share your experiences,
feel free to let us know down in the comments below!
If you liked this video leave a like and subscribe to Andrew's Aviation! And as always, stay safe and have a wonderful day everyone!