Minter: The world's cheapest airline flies again

By Adam Minter

Bloomberg View

Do checked-bag fees, $2 junk food "snack packs" and chronic overbooking make you nostalgic for an earlier, even less glamorous era of air travel? Then PeoplExpress is the airline for you. This week the relaunched version of People Express, the somewhat iconic 1980s-era discount carrier, began selling tickets for the first time in more than two decades for flights in markets that the major carriers have abandoned. In the early 1980s, the original version of the airline thrived on its ultra-cheap fares. But by 1987 debt, over-expansion and a reputation as "People Distress" had transformed the airline into one of the industry's most notorious failures.

So why would a group of entrepreneurs want to resurrect the brand? PeoplExpress hardly has the retro-transcontinental allure of a name like Pan Am. If anyone still remembers People Express fondly, it's probably for its cheap fares, ugly planes and the unswervingly perky demeanor of its employees — all of whom were paid in stock (as well as salaries) out of the belief that an invested employee is a committed, joyous employee. The January 1985 issue of Texas Monthly described the results of this compensation scheme in memorable terms:

You know the look that comes over the faithful at the mention of Sun Myung Moon? That's the look People Express personnel get when they describe their company.

Cult-like atmosphere aside, People Express still managed to be one of the most innovative U.S. airlines ever to light up an air traffic controller's radar. Texas Monthly inadvertently highlights that point in this gem:

"With smart fares and smart folks like yourselves, it's no wonder we're the fastest-growing airline in aviation history," enthused Captain Bob Slater as part of another curious PE phenomenon, the inflight commercial.

Of course, 29 years later, that inflight commercial isn't curious. It's as commonplace as several other People Express innovations that debuted with the airline in 1981, including checked-bag fees (People Express offered them first), meal-free flights, and snacks and beverages for purchase. Once considered extremes of the post-deregulatory U.S. skies, such features are now acceptable irritations that big legacy carriers use to pad their expanding bottom lines.

What made People Express work so well for a brief period were its cheap fares offered on short, cheap-to-operate routes under-served by the big carriers, such as Newark (the airline's base) to Buffalo, Columbus, Sarasota and Norfolk. Soon, however, full planes bred arrogance, and People Express expanded into markets where it competed directly with — and lost out to — the legacy carriers, including a Newark-London Gatwick route that went for $149 one-way. It didn't help that the airline didn't have a computerized reservation system, but rather allowed passengers to pre-book via phone and then — no joke — pay cash for their tickets on the plane, as if it were a bus. Overbooking rates, unsurprisingly, approached 200 percent. In 1987, crushed by debt and hubris, People Express was merged into Continental, never to be heard from again.

Who's nostalgic for this in an age when low-cost, low-frills carriers such as Spirit Airlines are common? PeoplExpress has an answer posted on its website: "It's time to dispel the myth that low air fares have to mean poor service or an impersonal experience." That's very nice, but it's hardly the basis for a successful business plan. After all, Spirit recently pulled off the remarkable achievement of becoming the U.S.'s most hated and its most profitable airline at the same time, suggesting that smiles aren't important so long as the price is right.