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Independence Air reduces service as ridership falls
By Dan McCue
Staff Writer
First came the bankruptcy filing; now comes word that Independence Air, Charleston International Airport’s low-fare airline, will no longer service Chicago, Buffalo, N.Y., Jacksonville, Fla., and Manchester, N.H., beginning Jan. 5.
The move comes a month after the Dulles, Va.-based airline filed for Chapter 11 bankruptcy protection.
Rick DeLisi, spokesman for the airline, said the end of service to the four cities was a further attempt to conserve on operating expenses by the company.
“Our service between Charleston and Dulles International Airport will not be affected in any way,” Delisi said. “The only difference people from Charleston will experience in our service is there won’t be connecting flights to these four cities.
“I would add, however, that we will still offer connecting flights to 32 other cities for our loyal passengers from Charleston,” he said.
As it stands now, Independence Air makes three flights a day between Charleston and Washington Dulles International Airport.
The reductions in service mean that as of Jan. 5, Independence Air will operate a maximum of 170 daily flights to 33 cities, down from 600 flights to 47 cities in late 2004.
Ridership down
The reduction of service comes on the heels of word that ridership on Independence Air was sharply down in November compared with the number of passengers the airline served in November 2004.
Last month, FLYi Inc., the Dulles, Va.-based parent company of Independence Air, filed for federal bankruptcy protection in the U.S. District Court for the District of Delaware. Now, just as it begins to accept bids from potential buyers, the airline reports that the actual number of passengers it flew in November 2005 is down 37.7% compared to the same period last year.
Independence Air flew 297,349 passengers to destinations across the United States in November 2005, compared to 477,424 in November 2004. In total, the company carried 5,007,202 passengers during the first eleven months of 2005.
Delisi said there is a silver lining in the numbers released by the company—the percentage of passengers is actually up.
How can that be?
“The concept of ‘ridership’ is something that’s dually interpreted in the airline industry,” Delisi said. “One interpretation is the total number of passengers. The other is percentage of seats filled, something we call our ‘load factor.’”
Independence Air’s load factor for November 2005 was at 65.6%, compared to 52% in November 2004.
“Based on those numbers, we believe we continue to build an audience,” Delisi said.
In the wake of its bankruptcy filing, the airline has reduced the number of 50-seat Bombardier regional jets it flies to smaller cities from 87 to 50, while continuing to fly its 12 larger, Airbus A319s, each with a seating capacity of 132, to more populous destinations.
Because Independence Air flies only the 50-seaters into Charleston International Airport, the number of flights serving the airport has been reduced to three per day, compared with the seasonally-adjusted seven or eight flights the airline has offered in the past.
Delisi said the reduction in flights is part of an effort by the airline to economize on fuel and to “find the right balance between our smaller and larger planes.”
Bidders line up
When FLYi Inc. filed for bankruptcy, it also entered into an auction process that will allow a corporate suitor to purchase Independence Air outright, invest in the existing company or purchase a portion of it.
“We have bidders in all three categories,” Delisi said.
Although FLYi has remained mum on who those potential suitors might be, published reports suggest the interested entities include Denver-based Frontier Airlines, Phoenix-based Mesa Air Group and Norwalk, Conn.-based Virgin Atlantic Airways.
On Dec. 8, Frontier chief financial officer Paul Tate said now that his airline has sold $92 million in debt, the company is poised to consider purchasing the assets of some of its less-fortunate competitors.
“There are a lot of assets coming up for sale in our business,” Tate told attendees at the Calyon Securities U.S. Airline Conference in New York. “If we see something of interest . . . we’ll have a little bit more flexibility to execute on that.”
Tate did not say what assets Frontier might be interested in, although analysts who attended the conference speculate the carrier might seek airport gates, ground equipment or Airbus planes. Independence Air owns 12 of those aircraft, although, due to their size, it does not fly them into Charleston.
Tate did say Frontier would not be interested in buying another airline outright.
For its part, Mesa Air Group has long had an interest in FLYi. In 2003, FLYi, then known as Atlantic Coast Airways, went to court to fend off a hostile takeover attempt by Mesa Air. Mesa’s bid was about $512 million.
January deadline
The bankruptcy court has set an early January deadline for the auction’s conclusion, by which time FLYi may well be out of money. In its November bankruptcy filing, the company said it had just $24 million in available cash. Its reported liabilities at the time were $55 million against assets of $378 million.
Asked what impact the reductions in service and November ridership numbers may have on the perceived value of the company, Delisi said, “The value of Independence Air will be determined by the bidders.”
According to papers filed with the bankruptcy court, FLYi has lost nearly half a billion dollars since June 2004, when it ended its Atlantic Coast feeder operation for United Airlines and recast itself as Independence Air.
Financial analysts contend FLYi simply could not withstand the response of United and other air carriers who could offer equally low fares on bigger aircraft in the highly competitive East Coast market.
The analysts contend that because Independence Air spread relatively high operating costs over 50 seats on the majority of its flights, it had little margin to contend either with empty seats or the high fuel costs it had to swallow after Hurricane Katrina ravaged the Gulf Coast.
More domestic passengers
The irony for Independence Air, and other bankrupt carriers such as Delta, Northwest, United and U.S. Airways, is that the Federal Aviation Administration is projecting 19% more domestic passengers in 2006 than traveled in 2002.
If anything, current passenger numbers here in the Lowcountry are even more promising, said David Jennings, chairman of the Charleston County Aviation Authority and an attorney with Rosen Rosen & Hagood.
“Our passenger numbers for 2005 are 25% above last year, and 2004 was a record year in terms of the number of passengers that passed through Charleston International Airport,” Jennings explained.
He cites the arrival of Independence Air in the market and Delta’s relatively new simpliFAREs program, which caps the cost of domestic flights and offers passengers other discount incentives to fly, as the reasons for a marked decrease in airfares from Charleston and dramatic increase in passengers.
“The problem is very few airlines can make any money pricing seats as they have,” Jennings said. “As a result, of the six carriers serving Charleston, three are in bankruptcy and the other three used to be.
“I don’t know how airlines do their economics, but I do know how they do their economics that doesn’t work.”
The aviation authority talks regularly with other carriers about opportunities that may be available for them in Charleston and often cites Independence Air’s success here.
Charleston International has consistently been one of the airline’s top two airports in terms of passenger traffic, Jennings said.
“We believe that shows there is a market here for a low-cost carrier,” Jennings said.
As for Independence Air, Jennings thinks the main question facing the company is whether it can still sell itself as an operating entity or whether it will have to be sold off in parts.
“Until Independence Air makes that determination, airports like Charleston won’t know the true ramifications of its bankruptcy filing,” Jennings said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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