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Despite all the corporate misery that they seem to be creating, the fare fights still have their boardroom defenders. One is Frank Borman, who steps down this week after 9 1/2 years as chairman of ailing Eastern Airlines, which is merging with Texas Air. He is also a victim of cut-rate competition: Eastern took a $111 million loss in the first quarter of 1986. Yet as Borman prepared to assume the largely titular role of Texas Air vice-chairman, he said last week that attractive prices and sharply increased passenger traffic have made the current competitive environment "a lot better than had we stagnated with high fares. I think society's better off."
For quite a while People Express was better off. The number of passengers taking the airline surged from 1 million in 1981 to nearly 12 million last year. But People bought planes and added flights so rapidly that the percentage of seating capacity used dipped from a 1983 high of 75% to an average so far this year of 60%. The company needs to fill 65% of its seats to break even. As Burr puts it, "Right now we're simply offering more than the public wants."
Burr saw rapid growth as a survival tactic in an air-transportation market dominated by bigger rivals. No other U.S. airline, though, has ever expanded as quickly as People. Burr was confident in the price advantage that People's low-wage, nonunionized employees produced over other carriers: 5.28 cents to fly a passenger one mile last year, vs. the industry average of 8.6 cents. He was overly blithe as he pushed his company into Atlanta and Dallas/Fort Worth, the territory of two major rivals, Delta and American. People gained size but it failed to gain strength.
Traditional carriers retal-
iated against the deep-discount threat with a blizzard of their own special offers. They had on their side a powerful weapon that People lacked: the sophisticated, highly computerized reservation systems linking them with at least 20,000 U.S. travel agents. The systems allowed the airlines to launch myriad discounts, usually on advance purchases with high (as much as 50%) penalties for failure to show up for the seat. For its part, People operated more like a mass-transit company. It offered two cheap daily fares--peak and off-peak--to most destinations, sold few tickets in advance and frequently overbooked its seats. Later this summer People will finally insert its flight schedule into the sophisticated computer networks managed by American and United.
The Newark airline has earned the nickname "People Distress." Its North Terminal center, once deservedly known as "the Pit," has improved over the years, but it still resembles a bus terminal at rush hour. A replacement facility is a year to 18 months away from completion. Horror stories have spread along the discount-fare grapevine of endemic baggage losses on People flights and of travelers stranded for hours in Newark, Denver or San Francisco. Chairman Burr protests that "we're as professional as any airline out there," but the stories have evidently hurt. One People way of fighting back: a two-month-old frequent-flyer program known as Travel Reward, which awards free flights to steady customers in the same manner as standard airlines.