Here, There, Everywhere

By Barbara Rudolph

Is People Express becoming too ambitious for its own good? The question arises because the feisty discount carrier seems to be expanding everywhere all at once. People last week started service from its Newark hub to Atlanta and Dallas/Fort Worth, two of the most hotly competitive markets in the U.S., and announced plans to begin flying to Brussels in September. The moves follow forays over the past seven months into 13 other new cities, including Montreal and Fort Lauderdale. Born only four years ago in the aftermath of airline deregulation, People Express now flies to 45 destinations and has become the tenth-largest carrier in the U.S.

People is in danger, however, of moving too fast. Several other discount carriers spawned by deregulation, including Air Florida, ended up in bankruptcy after overexpanding. Admits Donald Burr, People's founder and chairman: "There are risks in growing too fast, and there are risks in not growing at all. If I had my choice, I'd take the risk of growing too fast." He argues that his company is healthier than it has been in months. After suffering a $27 million loss between last October and March, the airline reported a record profit of $13 million for the April-June quarter.

People's flight plan has always been to offer fares so low that almost anyone can afford to come on board. The introductory one-way ticket prices on its new routes are some of its best bargains ever: $29 from Newark to Montreal, $99 to Brussels, $49 to Atlanta and $69 to Dallas. Before last week the least expensive flight between the New York-Newark area and Atlanta was Delta's $99 one-way fare. Passengers were required to buy those tickets one month in advance. Even a 19-hour Greyhound bus trip over the route costs $104. No wonder People's first week of flights to Atlanta was nearly sold out. The passengers did not seem to mind the airline's standard no-frills policy, which requires them to pay up to $2 for in-flight snacks and $3 for each item of luggage over the two-piece limit.

Despite its cut-rate fares, People expects to earn profits because its expenses are unusually low. Its employees are not unionized, and its pilots earn only between $40,000 and $50,000 a year. At American and United, in contrast, pilots take home an average of about $108,000 annually, and at Delta they earn more than $130,000. It costs People 5.17-c- to fly a passenger one mile, which is well below the industry average of 10-c-.

People's discounts on its new routes are coming just as some major airlines are trying to raise prices. Last week several carriers, including Pan Am and TWA, announced that they intended to increase some fares an average of 4%. They were following the lead of United, which two weeks ago announced a similar plan, to begin Aug. 17. The higher prices may not stick, however, if People's aggressiveness sparks a new round of fare wars.

Burr is confidently pushing People into the hubs of two major competitors. Delta operates 375 flights a day out of its Atlanta base, and American jets take off 310 times daily from the Dallas/Fort Worth airport. Though People will offer only three flights a day to and from each city, it could still pose a threat. To claim his share of these two lucrative routes, Burr seems to be spoiling for a fight. "We expect to stimulate price wars whenever we enter new markets. We like that," he says. "When competitors make a lot of noise, it attracts the kind of attention we want. We want the word to get around that a new guy is in town."

The battles are bound to be fierce. Says Mark Daugherty, who follows the airline industry for the Dean Witter Reynolds investment firm: "People Express is about to test its pain threshold. Cracking these markets is not going to be easy if American and Delta play rough." During the past several years Delta has successfully squelched United's attempts to expand its Atlanta business. "We have been developing this market for 41 years," says a Delta spokesman. Both American and Delta have already matched People's fares, although they have imposed certain restrictions. Moreover, they offer frequent-flyer bonus programs, while People does not. In the past People has sometimes had trouble competing with major carriers that matched its low prices. It has lost business to Northwest in Minneapolis and to Piedmont in South Carolina.

People has had difficulty in managing its own rapid growth. Its Newark base, which is more like a giant bus station than an airline terminal, is often uncomfortably congested. In addition, passengers find it frustrating to make reservations by telephone because the lines always seem to be busy. Says Harold Binder, a travel agent at Trade Mark Tours of Miami: "We just can't get through." Some resourceful customers have discovered a solution: stay up past midnight before calling.

People hopes that new computer equipment will solve its telephone problem, but the system is currently handling only 3% of reservations. That is one reason the carrier has not been very successful in persuading travel agents to steer passengers its way. Another obstacle is that agents, whose commission is generally 10% of the ticket price, make the most money on the most expensive fares. Says Barbara Riefle, president of New York City's Hardach Travel Service: "It's just not worth it to get worked up over a $29 fare."

Despite its growing pains, People has many supporters among industry experts. Alfred Kahn, the former Civil Aeronautics Board chairman who is the father of deregulation, gives the airline "a better than even chance" of succeeding in the Dallas and Atlanta markets. Kahn, now a professor of political economy at Cornell, believes that the public is rooting for People. "The big carriers would like nothing more than to squash the little carriers," he says, "but the consumers have shown that they prefer competition. They want discount airlines to live." And as the name People Express implies, giving the people what they want is what the airline aims to keep doing. --By Barbara Rudolph. Reported by Joseph J. Kane/Atlanta and Thomas McCarroll/New York

With reporting by Reported by Joseph J. Kane/Atlanta, Thomas McCarroll/New York