Understanding People and Organizations I

(UPO- I)

Instructor: Mr. Vishal Gupta

Case Submission: People Express Airlines

Submission Date : 30th June, 2016

Submitted By: Naresh Kumar
Roll No. 16050
 Environmental factors that lead to growth and decline of
People Express Airlines

In April 1981 PE began service, after congress deregulated the airline industry which took off
restrictions on new entrants. In 1984, the British magazine The Economist named People Express
(PE) the fastest growing corporation in U.S. History. The founder Donald C. Burrs desire to build
a better organization and strategies adopted were the main reasons for this exponential growth.

Some of the initiatives taken to create the learning and motivating environment were- giving
freedom of working, keeping minimum hierarchy, concept of self-management, cross utilization,
unique staffing policies, compensations etc. Naming all its people as managers shows the trust
PE had on its people and the freedom provided. They were named managers as they were managing
resources, environment, relationship etc. PE intended to create a working environment conducive
to personal responsibility, accountability and commitment. By having no assistants, secretaries, or
clerical staff, company kept the hierarchy minimum which led to direct communication.

PE expected all his people to be self-managed which means they participate in policy-level
decision making, through councils and committees. PE also followed philosophy of cross-
utilization which means everyone including managing officers was expected to rotate between in
flight and ground operations. For Customer Service Manager positions company preferred service
professionals like teachers, nurses etc. PE adopted strategy to reward people for good results in
terms of stock ownership and profit sharing and company also took care of medical and dental
insurances.

The company adopted strategies of providing low cost airlines, selecting routes not occupied by
giants but ultimately it was the highly motivated work force which increased the business from
flight to three cities in 1981 to 158 cities in 1986.

With such a fast growth, people strained to meet the overwhelming demand and policies like cross
utilizations started getting criticism from the people. Company could not keep up with the staffing
needs. Many senior managers had trouble with their workloads. Motivation was replaced with
frustration and discouragement. Cross utilization started missing its objective. Few people were
moving too fast on different roles that could not learn anything while others started to stay in either
staff or line positions.

Customer dissatisfaction started increasing. Practices like Overbooking to compensate No

show up resulted in over selling. Also in peak seasons PE North Terminal could get over crowded
and terminal sometimes had to serve 10 times the capacity. Flights were delayed, cancelled and
customer waited for hours in uncomfortable conditions so people started turning away.

In all this time, the major carriers became increasingly aggressive with frequent flyer travel
programs, variety of travel agency or distribution program , computer aided variable pricing,
increasing flight frequency and also through acquisition of major gates.

PE adopted strategies like changing the organization structure by making team of managers, their
training, taking more gates, acquisitions of other airlines, increasing fares, adopting new booking
system, increasing conveniences etc. but could not recovered and ultimately was sold to Texas Air
Corporation.