Kevin Tame

Dan Morgan
Tyler Christensen
People Express Simulation

The overall strategy employed in this simulation was to maintain growth across

the 10 year period and do it in a way that was aggressive and sustainable beyond the

simulated time. A problem that is faced in growing a company to quickly is that exponential

growth will rarely sustain over a long period of time and eventually critical mass will be

reached. In order to achieve fast growth without becoming too highly leveraged, an approach

of aggressively purchasing planes while maintaining an acceptable debt to equity ratio will

be used. Since marketing and a high service scope has little effect on customers perceptions,

using little to now marketing and maintaining a service scope of .60 is the optimal way for

People Express to generate the necessary growth to become sustainable and capture market

share.

The first major difficult challenge the company faces is setting the appropriate

price. At first glance lowering cost to .09 seems to increase demand, however running on

such a thin margin ultimately leads to a cost cutting strategy, overworked employees, poor

service and a loss of customers. If People Express competes on price they will most likely go

bankrupt or not grow quickly enough to capture market share. Raising the fare price to a

more reasonable margin is considered appropriate. Setting the price to .13 or .15, just under

the competitors price of .16, will give People Express more of a cushion during difficult

times. However, as soon as market share increase to a noticeable amount competitors begin

to lower their price to compete. This battle will not be won by People Express because the

deep pockets of the larger airlines will take a loss for a few years in order to drive People
Express into bankruptcy. It is concluded that competing on price is not recommended and

matching the price of .16 is ideal to generating the most income and growth.

The next problem that needs to be addressed how to maintain sustainable growth.

In growing a company, there is a fine line of optimizing the amount of debt used to generate

income versus over leveraging the company into a dangerous situation. In a high growth

company “Cash is King”, so every possible measure to generate cash was used to buy more

planes. Levering the company is important and cash flow will be suppressed for a time but to

reach the goal of becoming a large competitor in the airline industry, leverage is essential.

This balancing act between too much leverage and under utilized demand is handled by when

available net income is there. Buying aircraft only if equity is equal to or greater than debt is

a numerical check that was used to safely purchase airplanes without buying too much.

Airplanes are only purchased when funds are sufficient. In order to maintain a sufficient

growth demand a marketing strategy is generally used. However, having available cash to

sustain fast growth is more important so a strategy of little to no marketing will be used.

This is a risky approach however it appears that a word of mouth approach is more than

sufficient in building the appropriate reputation for People Express.

Maintaining a service scope of 60 percent is far below the industry average of 100

percent and seems difficult to compete with. However, even though People Express is

offering flights at a discounted rate it is able to compete at the industry average price with

this strategy because People Express gives the customers more of what they really want.

Even with a significantly lower scope of service People Express can achieve excellent

perceived service quality through fulfilling the necessities significantly better than the
competition. These necessities include highly responsive service and a high quality flight

experience. In providing a high quality flight experience it is believed that less is more and

doing a few key things well is preferred over doing many things average or bad. Through

maintaining a sufficient number of employees per plane and a moderate load factor People

Express is able to always have enough employees to complete the necessary tasks without

causing excessive demand on employees workweek. This creates happy and helpful

employees which lead to happy customers. This high minimalistic approach minimizes the

pitfalls which plague other airlines such as overbooking, delays, unresponsive personnel, lost

luggage, unappetizing meals, etc. People Express’ commitment to excellence with a limited

service scope has proven to be very effective in gaining market share from competitors.

In summary, People Express should grow quickly while trying to avoid being over

leveraged and competing on price. Marketing will not be used to generate demand and

building reputation thorough word of mouth proves to me more effective. Providing excellent

service by focusing on key concerns is a wise strategy. Too many frills cost too much and

does not provide substantial increase to revenue. Keeping the employee per plane ratio above

55 people per plane keeps quality of service high and increases the customer’s perceived

quality of service.
 Experienced
Workers O

B5 Delay

Experience

% of Rookies
S

Hiring
R2
Input S
Rookie B4
Factor S
S Inexperienced Hiring
O Employees
Productivity S

S Purchasing
R5
Airplane
Input
Productivity O Need for more
Available Money employees
S S
B3 S
O
Total Employees
O Growth
Restriction
R3
S
S S
Ability to Work Load Revenue Operating
Service Planes Capacity
Turnover Expense S
S
R4 S Price R1
Input
Service Growth
Ability Work Load
S

Market Share
S
S
Customers
Delay
S S

O B1
S
Average S Price
Workweek Reputation of
Competitor's Attention Competition Airline
of Dicounted Price S
Load Factor
O

S
O Price
Competition
Ability to do B2
good work

Quality Customer preception

S Quality of S of Airline
Service

Marketing Budget
Service Scope
Input
Input