05 January 2011

Flying for Less: The Birth of PeoplExpress

Don Burr was seen as taking full advantage of dergulation
For years Don Burr, a former mutual fund manager, and Frank Lorenzo had been inseparable since their early days as airline management consultants, long before they'd taken helm at Texas International. In the turnaround of Texas International, Don Burr was the brains and Frank Lorenzo provided the schmooze factor, demonstrating a remarkable talent in getting creditors off their back. They were the best man at each other's wedding and Frank Lorenzo was the godfather to one of Burr's children. Their families even vacationed together. Given their closeness, what was soon to transpire was earth-shaking in the industry.

In 1978 deregulation was right around the corner and suddenly the US airline industry would have to deal with an open and free market for the first time in its history. Even Lorenzo knew that Texas International wasn't the right vehicle for prosperity in the post-deregulatory market. He once remarked at a conference that there were only two kinds of airlines after deregulation- very small ones and very large ones and with Texas International only the sixteenth largest airline, it was neither. It could be crushed by the juggernaut that was American at DFW or nibbled to death by Southwest Airlines which had already cut deeply into Texas International's intrastate business. Lorenzo's solution was to look for a takeover target and get bigger by acquisition. Burr's solution was different. Markedly different, to say the least- while Lorenzo absorbed himself in a stock market race with Pan Am for control of National Airlines' stock, Burr decided the culture of the company had to change- it had transform to face the new market reality.

Frank Lorenzo's rise to fame began at Texas International.

In his younger days Burr read a book called The Greatest Thing in the World in which a 19th century Scottish minister named Henry Drummond extolled the virtues of establishing love at the foundation of every activity of daily life. Burr adored the book and still kept it within reach for moments of comfort and inspiration. Burr figured that he could apply the same principles to Texas International- trusting employees, eliminating time clocks, minimizing supervision and giving the employee the freedom and latitude to do the best job possible. Burr tapped Texas International's chief of service, Edwin Cathell, and they analyzed everything from Abraham Maslow's hierachy of needs to the corporate policies of other companies known in those days for progressive employee relations.

The result of this research was Don Burr's "People's Program"- a set of black three-ring binders distributed to all the officers of company. He then called a meeting to go over how he planned to transform the corporate culture of the airline to make it a better player after deregulation. Of course, Frank Lorenzo was invited. He hadn't read the binders, of course. That wasn't his style With Lorenzo at a glittering hi-rise office building in downtown Houston, Burr remained at the "Blue Barn", Texas International's headquarters at Houston Hobby Airport.

As the meeting began, Burr noted that while financial considerations were always vital to a company's performance once deregulation took place, the expected universality of low fares meant that Texas International would have to leverage customer service to survive and his "People's Program" would be the cornerstone of that transformation. Burr showed how the binders he distributed established a program of "Leadership and Love" throughout the company through psychological indoctrination, specialized training sessions, open work spaces, jogging trails and a shift from the "Blue Barn" to new campus-like corporate headquarters in the wooded suburbs north of Houston. Employees would work in an environment where they were not only cared for, but trusted. It would cost money, but the investment in improving productivity added to the airline's bottom line. 

Texas International operated primarily DC-9-10s/30s.

Ten minutes into his presentation, Lorenzo interrupted the presentation and told Burr to follow him to his office. And that's when Lorenzo told Don Burr what he thought of his People Program."This is complete bullshit!" Burr was crushed. Over the years of dealing with Frank Lorenzo, Burr would often storm out threatening to quit but like some battered wife, Burr always came back and never carried out his threats to leave Texas International for good. This time was different, though. Burr knew Lorenzo was trying to get control of National Airlines and it would be up to him to pick up the pieces and make it work while Lorenzo moved on to his next target. After several months of soul-searching, he called Lorenzo and told him "I resign". "Fine", Lorenzo sneered back, "it's about damn time!" while he laughed. Lorenzo had heard this from Burr a hundred times before and hung up on him. Burr then called Melrose Dawsey, Lorenzo's personal secretary (she was literally Lorenzo's organizer), invited her to resign and join him a new business venture. She walked out that day. Burr next called Gerry Gitner, Lorenzo's numbers man who was one of the most important gears in Lorenzo's machine. Gitner walked out that day was well. 

PeoplExpress started out with second-hand Boeing 737s.

It was a bad time go strike it out. There was a second oil recession on the heels of the Iranian Revolution, the Fed was jacking up interest rates to sky high levels to rein in inflation, the airline industry was stagnating, and Burr, Dawsey, and Gitner had just angered the most vindictive man in the history of the airline industry. Leasing a small office in the northwest suburbs of Houston, they put out word that they were available ready to fix any struggling airline. But it occurred to Burr, why fix one when we can start our own? Burr had already seen Southwest as a young upstart compete ably against Texas International, American, and Braniff in Texas. So it was possible if they leveraged customer service like Southwest had so successfully done in Texas. The three of them scraped together as much money as they could, selling their cars, homes, vacation condos, stock options, and depleting their savings to pull together about $500,000. 

Don Burr at his office at Newark's North Terminal

Burr figured they needed to start up someplace that was vulnerable to a low-cost competitor. And that would be the Northeast- airlines were pulling planes out of the region to more robust markets in the West and South. They would combine Southwest's high-frequency low-cost service with Burr's People Program. With the regional economy in the Northeast depressed, the area was ripe for a low-cost carrier to set up shop as the only airline not cutting back in the region was USAir, which was already saddled with the highest labor costs in the industry. JFK and La Guardia were too expensive for Burr's proposed airline and settled on Newark's abandoned North Terminal- the ceiling was falling in, it was infested with rats, garbage was strewn everywhere. But it was available for pennies from the Port Authority and Burr snapped it up. 

By Februray 1980 Burr along with Dawsey and Gitner met with a venture capitalist in Boston. When asked what the airline would be named, Burr replied that "the name will flow from the design." He was sure the name would come to him as things got rolling. The potential investor strongly advised them to think hard about the name as it should as closely as possible describe their business.

"We're people with a People Program, working to move people. We'll call it PeoplExpress."

And the rest, is history.


  1. Yep, I was too. I knew Mel when she was Lorenzo's secretary at TI.

  2. It was a great ride! Would love to be apart of it again!!