Do Business Well

The People Express business plan is notable for its lack ofemphasis on marketing issues. After all, in early 1980 the ideaof a discount airline was new and little tried. Who could besure that consumers would flock to a new airline that offeredcut-rate fares?

But according to Burr, the founders had little concern about that issue. “We felt that a $23 price would blow the market open,” he says. He points out that at Texas International, he had been involved in pioneering off-peak fares and, “When we cut prices to the bone, we were full.”

Where to locate.Other issues were paramount in the minds of the founders, including where to locate the new company’s hub— its base and the place where all flights eventually passed through. Newark, N.J., was first on their list because the airport seemed to be underutilized and was smack in the middle of one of the nation’s most densely populated marketplaces. “We talked about Baltimore, Hartford, New Haven, Oakland, and Kansas City,” Burr recalls. Oakland in particular intrigued them because its airport also seemed to be underutilized and was located in an attractive market. But PSA was already well established in California. In addition, PSA was, according to Burr, “a better-run carrier than you tended to find in the East.”

So they came back to Newark. “We couldn’t understand why an airport of that size in the largest air market in the world wasn’t being used,” he says. The founders did what they should have done in that situation—they asked around in the industry and did some research. Says Burr: “We decided it was prejudice. Everyone saw Newark as a loser. Other airlines had invested in other places.”

Gradually, he says, “We overcame our concern about Newark.” The founders even decided that their earlier concerns about living in New Jersey were probably unfounded as well.

How many planes? The business plan calls for the new company to acquire three jets. But within weeks of the plan’s completion, that matter became an issue of intense debate as Burr became aware of efforts by several airlines to sell used jets at what he considered attractive prices. Since the country was in a recession at the time, these companies needed cash and were eager to reduce their fleets. Lufthansa, for instance, was willing to sell several Boeing 737s for $3 7 million apiece, which Burr calls “a gift.”

Burr wanted to take advantage of a federal aircraft loan program in existence at that time: new airlines could borrow bank funds for the purchases and the government would guarantee 100% of the principal and 90% of the interest. Because the banks could lose very little even if the airline failed, they were willing to make such loans. Within weeks, the plan was modified to allow for the acquisition of 10 planes, and within three months it went up to 14 planes.

The three partners disagreed about the plan’s changes. According to Burr, one partner “thought we were wildly optimistic” to believe the new airline could fill 14 planes. Before the end of that year, Burr had engineered the acquisition of 17 planes. The company had also raised $250,000 of venture capital from Citicorp Venture Capital—not a huge amount of money in and of itself, but from a source that gave the company credibility. That credibility made possible an initial public offering in November that raised $23.5 million. Notes Burr, “The rest is history.”

Possibly related posts: (automatically generated)
Settling Key Start-up Issues: The People Express Experience

• Financial Issues: How Are You Doing?
• Product/Service Issues: What Are You Selling? part 3
• Writing the Business Plan
• Ask Yourself: Would You Invest?
• Targeting Your Plan continue...
• Evaluate Your Business Resources
• Targeting Your Plan
• How Your Business Situation Helps Shape Your Plan
• A Logical Planning Agenda: The Pizza Hut Experience
• What All Plans Must Cover

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