Non-Frills Airline on Buying Binge in Recent Months
NEWARK, N.J. (AP) _ People Express Airlines Inc. has been on a buying binge in recent months that has industry analysts in a holding pattern, deciding whether the purchase of three airlines was a wise move.
″When you go from zero to a billion dollar company you’re always going to have naysayers,″ said Russell Marchetta, a spokesman for People Express. ″The fact is we are still here and we’re still viable.″
The 5-year-old, no-frills airline is much larger now with the completed purchase of the financially strapped Denver-based Frontier Airlines in September for $300 million and the announced plans to buy Britt Airways and Provincetown Boston Airline Inc., two commuter airlines serving the Midwest and East Coast.
With the acquisition of Frontier, People Express became the nation’s fifth largest airline, behind United, American, Delta and Eastern.
The growth comes as employee-owned People Express has seen its profits plummet and despite a statement a year ago by Donald C. Burr, president and co-founder of the airline, that the company had no plans to purchase other carriers.
″Hey, it’s only an ignorant fool who sets his mind to something and doesn’t change,″ said Marchetta. ″If the industry is changing so much that you have to change with it or die, then you’ll change because that’s the smart move. Nobody ever accused People Express of being stupid.″
Robert Joedicke, an airline industry analyst for the investment firm Shearson Lehman Brothers, said the purchases were ″a change of thrust″ for People Express, but added that the logic behind them was obvious.
″The commuters will feed the main roads of People Express with Britt bringing customers to Chicago and St. Louis and PBA from a number of places alog the East Coast, most likely Florida,″ Joedicke said. ″Of course, Frontier will be a great feeder from the West.″
People Express has announced that it and Frontier will begin interconnecting service with the Terre-Haute, Ind.-based Britt, raising the number of cities served by the three to more than 100.
In addition, Frontier is being changed over to the low-fare, no-frills approach of People Express.
The companies bought by People Express will retain their own names, but will be wholly owned subsidiaires of People Express Inc. The holding company owns People Express Airlines Inc.
However, the purchases have analysts wondering whether People Express might have bitten off more than it can chew.
They have criticized the airline in the past for expanding too rapidly, pointing in particular to the 85 percent drop in profit to earnings of $1.65 million in 1984.
Earnings for 1985 have not been released. But People Express’ profit of $10.7 million through the first nine months of the year was virtually unchanged from a year earlier, and the company has predicted it will have a loss for the final quarter.
Adding to the analysts concern are the struggles Frontier and Provincetown- Bo ston have faced in recent years. Frontier, which serves 54 cities in the United States, Canada and Mexico, lost $31.4 million in 1984. Provincetown-B oston was on the verge of shutting down before People Express moved to buy it.
″From an assets standpoint, the sales look attractive,″ said Michael Derchin, an airline analyst for First Boston Corp. ″However, what looks attractive could hurt you in operating revenues. The question is how quickly can they turn it around at the troubled airlines.″
Derchin said the answer may not be known for six months to a year, but he added that the one thing could help People Express is its ability to raise money to finance its projects.
″They have always been a great faith stock,″ he said. ″They have raised tremendous amounts of money and equity. They raised $300 million last year alone and the financial market believes all the things they are doing will make money.″
Founded in 1981, People Express revolutionized the airline industry with its non-restricted discount prices that touched off fare wars with the more traditional major carriers.
Using a no-frills approach, the airline collects fares in flight and charges extra for luggage handling, food and beverages.
And the airline’s employees are not unionized, giving it lower costs and more flexible work rules.
People Express also benefitted from its decision to base its operations at the under-used Newark International Airport, capitalizing on its proximity to New York as a drawing card for passengers. It now serves 49 cities.
End Adv Sunday Feb. 16