The End of Indepence

By Tim Beyers (TMF Mile High)
January 3, 2006

Finally, an airline is dead. FLYi (Pink Sheets: FLYIQ.PK), the parent company of low-fare carrier Independence Air, announced over the holiday weekend that it would cease operations Thursday. Approximately 2,700 workers will lose their jobs.

I want to mourn. I really do. But I just can't, because … it's about time. Airlines have been so dismal, for so long, that the cold cruelty of the market was bound to take the life of one of these miserable firms. Independence Air just happens to be the first victim.

Several factors contributed to the downfall. First, FLYi was formerly Atlantic Coast Airlines, a regional carrier that catered to passengers of United and Delta taking short-hop trips up and down the East Coast. Its business model depended on fees paid by each of the big boys. But at least one of those relationships went sour when Atlantic Coast demanded more favorable terms from bankrupt United. It didn't get them. Figuring that leaning on brittle partners wasn't such a good idea, the carrier struck out on its own shortly thereafter. Thus, FLYi was born. It all made perfect sense, of course -- except that the economics of a regional carrier running loud, 50-seat jets are a whole lot different than those of a national discounter.

Second, as our own David Meier pointed out here, Indy Air was in dire need of extra moolah to build up its customer base in the shadow of its larger competitors. The average load factor -- that is, the percentage of paid seats versus those available -- was below 50% shortly after the new airline took off. Changing that would mean more marketing expenses and lower fares, which, in turn, would mean more capital, which, naturally, would mean more debt. Lots and lots of additional debt.

FLYi, however, would never make enough to fund interest payments and ongoing operations, let alone growth, making its warnings from November -- that it could shut down as soon as Jan. 7 -- prophetic.

Sadly, that's good for the industry as a whole -- not that fares will suddenly rise overnight. But fewer carriers means more profit over a smaller base. The fight to claim an outsized piece of that pie has already begun. JetBlue (Nasdaq: JBLU) and AirTran (NYSE: AAI), for example, are planning more flights between Boston and FLYi's Dulles Airport hub, the Boston Globe reports.

Is this a turning point for the airlines? Hardly. FLYi was a regional carrier trying the business equivalent of a loop-de-loop in a 747. The nationals -- from United and Delta to AMR's (NYSE: AMR) American and Continental (NYSE: CAL) -- have more support from the Feds, credit assurances from banks, and millions of customers with billions in frequent flier miles. All of which means that another shutdown, while probably needed, isn't likely for now.

Airlines Seek Gain From Carrier's Demise
Friday January 6, 4:14 pm ET
By Derrill Holly, Associated Press Writer 
Several Airlines Increase Efforts to Fill Void Created by Bankruptcy of Independence Air

WASHINGTON (AP) -- Several airlines are stepping up efforts to fill the void created by the bankruptcy of Independence Air.
Less than 12 hours after pilots parked the last of the now closed company's jets at Washington Dulles International Airport, at least four carriers were promoting sales or expanded service. Some were offering flights from the National-Capital region's three major commercial airports as low-cost options for passengers searching for cheap fares.

"We're starting up to six flights daily from Dulles to Boston on January 17," said Jenny Dervin, a spokeswoman for JetBlue Airways Group Inc. While the service expansion was announced in November, Dervin said the company has decided to reintroduce a $25 one-way fare on the new route.

The tickets must be purchased by Jan. 10 for travel by Feb. 15.

"A lot of people in this market book at the last minute," Dervin said.

At Southwest Airlines Co., which serves the Washington, D.C. area from Baltimore-Washington International Thurgood Marshall Airport, officials were hoping a $49 one-way fare sale launched Friday would tempt leisure travelers. The sale prices are part of a systemwide promotion by the Texas based carrier.

Independence Air's fleet of 42 planes -- 12 132-seat Airbus A-319 jetliners and 30 smaller 50-seat Bombardier CRJ jets -- are now parked in hangers or on storage tarmacs at Dulles. The aircraft, which accounted for 23 percent of the daily departures at Dulles, are awaiting liquidation with other company assets subject to the approval of a federal bankruptcy judge.

Under federal law, airlines are allowed to charge a $50 standby fee for honoring the failed airline's tickets.

The company filed papers this week seeking permission to refund fares to customers for outstanding tickets.

"Some carriers were charging for that standby, we did not," said Angela Vargo, a Southwest spokeswoman.

"We're lowering costs in our East Coast shuttle markets," said Phil Gee, a spokesman for US Airways Group Inc., formed by Tempe, Ariz.-based America West Airlines' acquisition of the old US Airways last year. Fares from Washington to Boston and New York LaGuardia have been cut by 40 percent.

US Airways, which serves Dulles, BWI, and Ronald Reagan Washington National Airport, have adopted the America West ticket pricing policies to position the US Airways brand as a low-cost carrier. The Saturday night stay required for discounts on many so-called legacy carriers has been eliminated.

Fares to about 20 destinations from Charlotte, N.C., Philadelphia and Pittsburgh were reduced on Thursday by 40 percent to 60 percent. The reductions are designed to provide lower cost fares to cities like Syracuse, N.Y and Buffalo, N.Y., both former Independence Air markets.

Spirit Airlines, which serves National Airport outside of Washington, is investigating the possibility off adding discount service to some markets formerly served by Independence Air.

"We have reached out to let customers know the great deals we have so they can give us a try," said Lynne Koreman, a Spirit spokeswoman.