As one of the first post-deregulation start-up airlines, it thrived in the east coast markets from its Newark hub -- beginning operations in 1980. Operating a fleet of used narrow body aircraft (B727, B737) and employing non-union workers. PEX it was able to achieve very low direct operating costs per ASM. PEX was able to operate at a cost per seat mile of less than 6 cents, 50% less than its competition (Delta, USAir). As a result PEX was able to offer its customers low $35 airfares and attract competing airline customers, while still earning a profit. The lucrative times for PEX however did not continue. Like most airline failure scripts, it over-expanded. Attempting to expand into major airline territory and compete head-on with well-established airlines. It was competing with too many airlines in too many markets, and lost the battle. Eventually, PEX merged with failing Frontier airlines, in a flawed attempt to expand its market share westward. In actuality, this merger further weakened the carrier as both United and Continental lowered fares to compete in the western region. PEX was finally purchased in 1987 by Continental Airlines (Texas Air), and the Cinderella story had ended. .
Some important lessons were learned from the PEX failure; Airline seats are commodities, and most customers will be attracted to the lowest priced seat. Customers search for the most value for the lowest price, as a result customer service is the key to return customers. Business travelers search for the most value, and are willing to pay a premium ticket price for this service. An airline must attract a sufficient amount of high yield business travelers to sustain a profit, balancing the low yield from discount tickets. The key lesson from PEX is that small niche carriers should not attempt to over-expand without adequate cash reserves -- to sustain long fare wars with major carriers in certain markets.