For more than a year, the wings of high-flying People Express had been drooping under the heat of intense competition. In the first six months of 1986, the revolutionary discount airline lost an estimated $103 million, an alarming deterioration compared with a $5.7 million deficit for the same period last year. Finally, said Donald Burr, 45, People's founder and visionary chairman, "we had to do something." Last week Burr did. In a tersely worded statement he announced the possible upcoming sale of part, "or under certain circumstances even all," of the country's fifth-largest airline, which had 1985 revenues of nearly $1 billion. Thus came to an uncomfortable reckoning, if not an end, an experiment that in only five years of low-cost, no-frills travel profoundly shook up the U.S. airfare structure and challenged the longtime dominance of the major airlines.
In an interview with TIME, Burr clarified his position, declaring that "it's not really my intention to sell the whole airline. First we'll sell some assets and cut our costs." He added, "We've been tested before. We'll find a way to deal with this setback too." The stock market, however, ( remained skeptical. People stock, which had been trading fitfully in the $9 range since January, was pummeled in the past two weeks on Wall Street down as low as $4.88. Five days after Burr's announcement, People shares closed at only $6.75. There was considerable irony in the challenge that Burr and his brainchild were facing. Almost from its inception, People has been an air- industry legend--and headache--as Burr made air travel more accessible than ever before with his drastically lower fares. By last week Newark-based People had grown from a three-aircraft service in 1981 into a 117-jetliner network spanning 107 North American cities and including Brussels and London. But the company had strayed seriously from the keep-it-simple formulas that had made People a case study at business schools across the U.S. Only nine weeks after People installed a semiswank VIP lounge in its dowdy North Terminal at Newark, the company was on the verge of becoming a casualty of the very same fare- cutting wars that it had provoked.
The fare battles continue with no sign of a cease-fire. Budget flyers could still fly from New York City to Los Angeles last week for as little as $99, from Atlanta to Seattle for $129. Boston to Miami could be bought for $109, Dallas to Chicago for $89. From January to May, according to industry analysts, only about 11% of U.S. passengers who stepped aboard a commercial airliner paid full fare for their ticket.
Because of cheap fares, red ink has flowed more widely across the skies than coffee, tea or milk. In the first quarter, United Airlines, the largest U.S. carrier, lost $103 million. TWA did even worse, dropping $170 million. Long-troubled Pan American, which sold off its Pacific routes to United for some $750 million last year, lost $118 million. Indeed, in the entire U.S., only three sizable airlines showed a first-quarter profit: Southwest, which squeezed $7.1 million into the black; American ($4.2 million); and Aloha ($1.8 million). Says Michael Derchin, an airline expert for the First Boston investment firm: "It's become a Darwinian environment up there."