People Express to Survive, Chairman Assures Holders
The founder and chairman of financially ailing People Express said Thursday that the airline will survive, despite predictions to the contrary, though on a considerably reduced scale.
“I think we are here to stay,” Donald Burr told shareholders at the low-cost, no-frills airline’s annual meeting. “Mark Twain said it so well: ‘The reports of my death are greatly exaggerated.’
“We built a large airline in five years, and we are now very intent and very focused on running the airline and not acquiring any other companies at this point. We will survive in this competitive battle.”
People Express said recently that its financial situation was so precarious that it was seeking to sell all or part of itself. Out of that came an agreement on July 10 to sell a subsidiary, Denver-based Frontier Airlines, to United Airlines for $146 million. People Express has owned Frontier for only about six months.
Burr, as he addressed the stockholders, conceded that People Express might have expanded too quickly since its founding in 1980. “We added too many large aircraft, and we need to adjust downward . . . the number of aircraft that we operate until we successfully appeal to a broader range in the marketplace,” he said.
To that end, People Express, which lost $58 million in the first quarter of 1986 and has been in the red in three of the last five quarters, is negotiating with a number of airlines for the sale of 10 or 11 of its airliners--eight 727s and two or three 747s, Burr told the more than 200 stockholders in attendance. The airline also will drop service to between five and 10 cities in the fall, reducing its total number of daily flights to 168 from 222.
United Delays Application
In the meantime, United said Thursday that it has delayed applying for government permission to complete its purchase of Frontier because of what United said was its inability to reach a labor pact with Frontier’s unions.
When the sale of Frontier was announced, UAL had set a deadline of July 31 for reaching agreement with Frontier’s five unions. Under the agreement announced July 10, UAL is able to walk away from the deal if it cannot reach an accord with the unions.
United, which was to have made its application by Thursday with the Department of Transportation for approval of the deal, said in a statement that “it would be inappropriate to take up the department’s time on a matter that is still pending.”
Burr said Thursday that People Express had already received $21.7 million of United’s $50-million down payment. But he conceded, in answer to a shareholder’s question, that People Express had put up five airliners as collateral for the $50 million.
Burr declined to answer any questions from reporters after the meeting, which lasted just over an hour, and quickly left the hall.
However, another high-ranking official of the airline implied that People Express is having difficulty paying its bills. “We are holding our cash,” he said, “pending receipt of Department of Transportation approval” of the Frontier sale.
Burr also said during the meeting that People Express’ policy of selling tickets during its flights is “under review.”
Problems Cited
A People Express pilot and stockholder said crew members frequently do not have full information on current fares and are unable to levy the proper charges.
He said the practice also presents a danger to passengers since frequently “my engineers are asked to radio for fare information even before we have reached 10,000 feet,” when the radio is often needed for flight operations.
Burr said People Express’ frequent flier program, which it initiated May 1, already had 56,000 members. He said that the airline, which has been known informally as “the airline of backpackers,” has been making numerous moves to change its image and that 50% of its clientele is now made up of businessmen.
“These are self-declared price sensitive business people,” he said.
