People on the Move

In the four years since it was launched, People Express has brought no-frills flights to 49 cities. Yet even though it now has routes to London and California, the Newark-based company is still primarily an east-of-the- Mississippi phenomenon. Last week People took a giant step toward becoming a national airline by outbidding Texas Air to buy Denver’s Frontier Airlines for about $300 million.

Only two weeks ago, it looked as if Frontier would have a quite different fate. Texas Air Chairman Frank Lorenzo had offered to buy 60% of the outstanding stock of Frontier Holdings, the airline’s parent company, for $20 a share, topping a $17-a-share bid made by four of Frontier’s five unions. Frontier’s employees, though, were anxious to avoid dealing with Lorenzo, whom they consider anti-union. In 1981, he bought Continental Airlines and two years later declared bankruptcy in order to get out of costly union contracts. In August, TWA’s unions joined forces with Corporate Raider Carl Icahn to block Lorenzo’s attempt to take over that airline. Says Lorraine Loflin, president of Frontier’s flight attendants union: “We had directives from the membership that Lorenzo was not acceptable.” The unions, which had given $32 million in wage concessions while trying to take over Frontier, said they would revoke the salary cuts if Lorenzo took over.

A hectic series of negotiations between People and Frontier began when People Founder Donald Burr called Joseph O’Gorman, Frontier’s president, about a deal. While on vacation in Monterey, Calif., Burr met with O’Gorman for two days. The talks then shifted to Denver’s United Bank Tower and finally to New York’s Chase Plaza. After receiving labor’s blessing, Frontier’s management opted for Burr’s $24-a-share offer.

The People-Texas Air battle brought back together two old rivals. Burr was a protege of Lorenzo’s at Texas Air in the 1970s but left on bad terms. Though they still dislike each other, Burr and Lorenzo share certain traits, including an antipathy for organized labor. Wall Street analysts were dumbfounded that Frontier’s unions found Burr any more palatable than Lorenzo. People, after all, is a non-union shop. Says one airline consultant: “Don Burr is as surprised as anyone else that Frontier struck a deal with People.”

Questions remain about Frontier’s future. The purchase agreement guarantees that no employees will be laid off for a minimum of five years, but People’s management is known for its low-budget operations. It flies passengers for 5.17 cents a mile, about half the industry average. People will surely look for ways to cut overhead, and that could include labor costs.

Linking People’s routes with Frontier’s should make for a good mix. People flies mostly to East Coast cities, while Frontier’s routes are concentrated in the West. In addition, Frontier’s 21 landing gates at Denver’s bustling Stapleton Airport are a valuable prize for People. Says Ruth Hennefeld, an investment manager at Merrill Lynch: “The deal is a bargain for People. The company bought into the Denver market for far less than it would have cost it to start from scratch.” People’s once lofty goal of becoming a national airline now seems remarkably down to earth.