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 The Brancatelli File

joe CAN INDEPENDENCE AIR
MAKE LOW-FARE LEMONADE?


BY JOE BRANCATELLI

November 18, 2004 -- Before we can even talk about what it's like to fly Independence Air, you have to remember that this six-month old airline is essentially an attempt to make low-fare lemonade from a couple of crates of flying lemons.

As you may recall, Independence Air used to be called Atlantic Coast Airlines and was primarily known in recent years as the United Express carrier based at Washington/Dulles. After United plunged into bankruptcy two years ago, United tried to renegotiate downward all the contracts it had with its independent commuter carriers. Most of the commuters went along with United's demands because United had all the power: It usually controlled the planes and/or the airport gates and certainly controlled the reservation network, the franchise rights, the United Express brand and the traffic.

But Atlantic Coast was different. Atlantic Coast owned all the commuter planes and all the commuter gates at Dulles, a crucial United international hub, thus giving it an advantage that United's other commuter carriers didn't have. Atlantic Coast refused to buckle under to United's new demands and the airline's management decided to break away and launch an independent, low-fare airline. United, however, still had a trump card: Only United could break the commuter contract between the two companies so Atlantic Coast couldn't just fly the coop, abandon its United Express obligations and launch the carrier it quickly dubbed FLYi.

Logic dictated that somehow, some way, the two airlines would cut a new deal and fly happily ever after together. But since when did logic ever apply to the airline business?

After more than a year of ugly public squabbling, nasty lawsuits and an attempted hostile takeover of Atlantic Coast by another regional carrier that wanted to do business at Dulles on United's terms, United and Atlantic Coast decided to cut the Gordian knot and go their own ways.

Thus Independence Air was born and, on June 16, Independence's management began blackening the Eastern skies with its huge fleet of more than 100 reconfigured and repainted regional jets (RJs). Virtually overnight, Independence was flying 300 flights a day to 38 cities, including logical places like New York, Boston, Chicago and Atlanta and out-of-the-way places like Lansing, Greensboro, Knoxville and Charleston (both South Carolina and West Virginia).

Want an example of the frenzy? At my local airport, Stewart/Newburgh, about 60 miles north of Manhattan, Atlantic Coast was historically unable to fill three daily 19-seat flights when it flew to Dulles as United Express. By September 1, however, Independence was operating six 50-seat flights a day between Stewart and Dulles. In other words, this miniscule route went from 54 mostly empty seats a day to 300 mostly empty seats a day.

To fill up its planes, Independence slashed fares. Prices as low as $44 were common and travelers got a one-time $25 roundtrip discount when they joined Independence's frequent-flyer plan, iCLUB. But the low fares didn't help much. Planes flew mostly empty. In fact, the rock-bottom fares didn't even help in markets like Charleston, West Virginia, where travelers had been desperate for low fares and frequent flights to big hubs like Dulles.

Through the first months of its existence, Independence Air's load factor hovered around 45 percent. It wasn't until last month when Independence managed to fill more than half its seats systemwide. But when it takes you six months to get to a 52 percent load factor on 50-seat jets, you know you have trouble. And, boy, does Independence have trouble.

With fares so low, the remarkable run-up in fuel prices is crushing the airline's balance sheet. So's the relatively high cost of running a fleet of RJs as the backbone of a low-fare airline. The airline recently paid a maintenance fine to the Federal Aviation Administration. It has had to delay the launch of its Airbus A319 flights to Florida due to certification issues. It failed to make required deposits this month and last on a fleet of Airbus aircraft it has on order. It faces lease payments for its RJ fleet of about $80 million in January. It lost $83 million in the third quarter, a rude reversal from its $23 million profit in the same quarter of 2003 when it was still flying commuter flights for United and Delta. The airline's stock closed at $2.17 a share today, down from its 52-week high of $11.58. The airline's largest individual shareholder is demanding the carrier return to commuter flying. And, oh yeah, at least one analyst says the airline is headed for the bankruptcy court early next year--and Independence's management admits Chapter 11 is now a possibility.

To be honest, very little of this bad news is surprising. Almost no one except Independence Air's management believed in the FLYi business plan. Even those of us who cheer the arrival of low fares and frequent service from an airline trying to break the Big Six mold were skeptical and reminded travelers that Independence Air was a desperate, overreaching attempt to make lemonade.

Other than that, Mrs. Lincoln, how were the flights? Well, to be honest, how good can an RJ flight be? If Independence has entered your market with RJs and you've only been served with prop jets or had no service at all, it's a boon. If Independence's arrival has driven down the price of flying the Big Six on routes where they offer real jets, you're getting an ancillary benefit of the airline's presence.

But reviewing RJ flights is almost fruitless. The planes have no legroom (Independence's aircraft have an industry-standard 31 inches of seat pitch) and the all-coach, 2x2 configuration guarantees narrow seats. Unless you're 5-feet, 5-inches tall and 140 pounds, you'll find an Independence Air flight a typically uncomfortable RJ ride.

Now it is true that Independence has outfitted its RJs with new leather seats. And if you're on a half-empty RJ, well, you get your own row of two seats and the ride is a bit more bearable. But an RJ is an RJ is an RJ and cutesy safety announcements from celebrities--Independence has hired everyone from Dennis Miller and Little Richard to the husband-and-wife, left-right politicos James Carville and Mary Matalin to record the boilerplate--don't help much. The third or fourth time you hear the same joke about seat belts, well, it's just not funny and you still have to sit in a cramped RJ seat.

Independence does have a lot of fast, easy-to-use check-in kiosks at its Dulles hub. It has huge, flat-screen arrival and departure monitors there, too. But almost all Independence flights at Dulles depart from what the industry calls "hard stands." That means, like prop flights of old, you walk on the tarmac to your plane and walk up and down an external staircase. That's been okay this summer and early fall when the weather has been comparatively mild. But winter at Dulles is routinely miserable with lots of chilly rain, sleet and the occasional blizzard. And after all that tromping and weather, you end up cold and damp--and sitting in a cramped RJ.

Whether Independence has any real future is still, uh, up in the air. It's been trying to increase fares--Thanksgiving weekend rates between New York and Dulles have crept up to about $114 one way, but prices are back down around $53 one-way for the week after the holiday--and smooth out the balance between available seats and willing passengers. It has also given up its initial attempt to force all travelers to book direct at the FLYi Web site or via Independence's toll-free lines. Independence flights will soon be available from third-party Web sites and traditional travel agents.

But if fares stay low, fuel prices stay high and Independence's Big Six competitors continue to shadow the airline with their own new capacity--Delta recently moved some RJs from its abandoned Dallas-Fort Worth hub directly into nonstop Florida markets that Independence was hoping to pioneer--the odds are bad.

As Independence Air management is learning the hard way, there's only so much low-fare lemonade even us thirsty frequent flyers can drink.

This column originally appeared at JoeSentMe.com.

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.