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Don't Blame Deregulation

July 13, 1986

As a graduate student in Pepperdine University's MBA program, I have recently concluded an in-depth case analysis of People Express, and I was most interested in the focus of your June 25 article ("Travelers May Pay Price if People Express Fails"). You cite the possibility of "an end to the low fares that have enabled many Americans to travel widely by air."

In fact, People Express is not the "airline that deregulation built."

Although People Express was formed specifically to take advantage of the Airline Deregulation Act of 1978, the company's greatest strategic error was not in failing to build profits, but rather in failing to recognize in 1981 that the niche market which it originally served (low-cost, no frills, short distance air travelers) would be quickly invaded by other major air carriers.

People Express was not able to maintain differentiation based on price, and over the past three years the airline has been unable to successfully compete against other air carriers on their own turf.

The lowering of air fares by all air carriers since the Airline Deregulation Act of 1978 demonstrates the power of free-market operations. I see no reason to presume that the potential failure of People Express marks a return to higher fares.

In fact, if People Express does fail, it will be the result of poor management, over-ambitious growth plans, and a failure on the part of the company to adjust the entrepreneurial management style (which so successfully formed the airline originally) to an organization in which authority is vested throughout the company.

If People Express fails, it will not be a black mark against deregulation, but rather a demonstration of how the other guy can put your lights out if you do not remain responsive to the market.



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