MM 5001 Business Law and Business Ethics Corporate Culture at People Express Airlines

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Haidir Afesina

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2012

1. Objective How to align the culture after the acquisition of frontier airlines as they become bigger? 2. Background It was started with the Airline Deregulation Act of 1978, the innovative discount carrier introduced flying was cheaper than driving. People Express Airlines began operating in April 30th,1981 and grew into being the dominant player in the US domestic airlines market with low price. It based in Newark International Airport, New Jersey with three Boeing 737s and 120 employees. Then it acquired Denver based airlines, namely Frontier Airlines in late 1985. However, by the end of 1986 is had been sold to Texas International Airlines due to its financial problems. Donald Burr founded people Express (PE) and established very clear principles and values to drive its staff in all its activities. As it turned out, the 6 so-called precepts and the corporate culture that everyone cherished were instrumental in bringing the company to its rapid and wide-scale success. There are services, commitment to the growth of people, best provider of air transportation, highest quality of leadership, provide a role model, simplicity and maximization of profits. 3. Analysis The ideas that Donald Burr built into his airline were revolutionary. In an age where employees were given little flexibility and were closely supervised, People Express was an enterprise that truly empowered its people and gave them independence. The environment in which people worked was very motivating not only because of pay incentives, but also it served some basic spiritual needs of the employees. There are; 1. Self Management Everyone is a manager. The empowerment of making decision for effectiveness is being applied 2. The team concept The team building training in every department has an integral part for their successful journey 3. Cross Utilization Each manager in the airline performed a wide variety of tasks. The cross training and rotation among the department are being applied

4. Ownership and profit sharing Every new manager has to buy at least 100 shares of discounted stock as condition of employment 5. Flat organization and democratic values The authority is widespread and with minimal hierarchy Donald Burr made a decision that was not in the spirit of the principles that he had taught his employees, i.e. the purchase of Frontier Airlines. First, it created a shock among the employees. A concern whether they will have to change their system and working environment. The reason many people interest work at People Express is because they are so different in terms of policy and working system among other company at that time. Second, Frontier Airlines culture and business model was too different from People Express to be able to successfully integrate with it in the intended timeframe. Frontier Airlines had high operating costs and was already struggling financially. 4. Culture Effectiveness Model 4.1 Involvement The employees were demotivated because of their involvement in the company decrease. The environment was characterized by incredibly high involvement, but it changed as the organization grew, despite improvement such as the restructuring into operating groups. 4.2 Consistency The system has change to be formal. The people are not ready as they believe that direction and control necessary to manage a rapidly growing organization came from a shared vision and shared values rather than a system of administrative oversight. So that it no longer create a humanistic work environment. 4.3 Adaptability Since they acquire Frontier airlines, the system and the culture should be aligned. Unfortunately, it failed to adapt the new concept that the management decided, i.e. move to middle class market. The company is unable to apply the on time performance, failed to provide the first class service, and also underestimate to power of technology when running business. They simply increase the fares and ignore the readiness and capability of their human resources.

4.4 Mission People express was a powerful example of mission-based organization. It combined a business strategy, career strategy and individually meaningful work into identity. However, since the acquisition of Frontier Airlines which is financially struggle, People Express changed their original mission that unleash the power of individual in a team to be more ambitious creates a profit and become a bigger airlines. So that it created more workloads and the stress on the organization increased in day-to-day work of each employee. 5. Lessons Learned 5.1 Culture Fit into the Decline and Failure First, it failed into transition. The culture shock after the acquisition was happening among the employees. The people are not ready with the management ambition that wants to get a bigger market to get more profits. The failure of People Express came because of a clash between the organizations established goals and the too ambitious pursuit of market share. There is no happiness at their working environment since they have to follow the formal hierarchy along with more workloads. It moved too fast as they just operated in three years. Second is a slow response of innovation. They came too late to realize they needed to invest on technology in order to compete in this industry. However, it has to be the aligned with the readiness of the human resources. 5.2 Individual vs Collective Values As the company is getting bigger, a deeper look at the culture is needed. People Express has a strong culture that emphasized individual values. After the acquisition, the individual value of each employee seems disappeared. There is no share values and shared mission when the organization grew. The tension is appeared, as the business had grown so large, the employees had begun to have trouble fulfilling PEs goal of being the best provider of air transportation as they have to get more profits and adapt with hierarchy system. Donald Burr eventually had to sell People Express because of its financial difficulties, but the business model of his company has permanently transformed the airline industry. It was, after all, Burrs principle of cutting costs that eventually allowed other carriers to compete successfully with People Express and drive it out of the market.