The saga of 'win-loss' price wars

Independence Air, a low fair airline, will discontinue operations from January 5, two days sooner than expected. The company which is a sister concern of FLYi, had to take this decision in wake of the severe losses being suffered by it and the absence of any major buyer or investor.

The shutdown comes two months after FLYi filed for Chapter 11 bankruptcy protection, citing high fuel costs and intense competition as the major reasons for such a show down. The news comes nearly 19 months after it launched services, promising the lowest fares and great services for its coast-to-coast flights. The company, in its bankruptcy filing on November 7, declared that it would shut down if it could not find a buyer by January.

When it began services on June 16, 2004 midst much hype and fanfare, Independence Air, offered no less than 600 flights a day to 47 cities! However, owning to its ever-growing losses it was forced to cut them down to 200 daily departures.

According to reports two airline companies had expressed interest in bidding for FLYi's assets. One being, a Phoenix-based regional carrier called Mesa Air Group and the other being FLYi's former partner, UAL, parent of United Airlines.

In an official statement, however, the company's Chairman and Chief Executive, Kerry Skeen, said, "While we've been clear in reminding everyone that this was a possibility (shutting down operations completely), we remained optimistic that there would be a way to avoid reaching this juncture. But to date there has not been a firm offer put forward that meets the financial criteria necessary to continue operations as is. The financial pressures in the industry have prevailed. We have run out of time."

Yet, putting on a brave face and complimenting his workforce for their consistent efforts, he noted that the airline ranked high in customer satisfaction and brand strength. "Why did our brand succeed in customer satisfaction? It really falls on your shoulders; you did a great job. The thrust of my message today is: Hold your heads up high, as difficult as that might be.", said Skeen.

According to most analysts, Independence's failure lies in the mistakes made by it specifically and is not due to any fundamental flaws in the low-fare carrier strategy that was pioneered by Southwest Airlines Co. in the aviation sector. Terry Trippler, who runs the CheapSeats.com travel website, said in an interview, “ they had too many planes flying to too many cities too often and too low prices. There was just no way they could make money. Fuel prices didn't help either."

However, other industry analysts believe that Independence Air was hurt by their strategy of relying heavily on 50-seat regional jets, which many passengers considered cramped and loud, and which for Independence did not offer the favorable economics of 100- or 120-seat jets.

The company's spokeswoman Valerie Wunder said, "only a minimal number of customers hold tickets for flights to or from New England airports after Thursday. We've had very little bookings for January, both because it's normally a slow month for travel and because passengers held off buying tickets until Independence's fate became clear." However, she did not have precise figures for Boston or the five other New England cities the airline serves.

Independence Air, said that it was trying to reach passengers holding round-trip tickets with return flights after the shutdown deadline to switch them to flights returning before 7 p.m. Thursday. After that, other airlines operating flights on the same routes as Independence that have standby seat capacity are obligated to honor Independence tickets if passengers pay a or 0 switching fee, under a provision of the airline industry bailout bill enacted after the Sept. 11, 2001, terrorist attacks.

FLYi said it is seeking approval from the U.S. Bankruptcy Court in Delaware to issue refunds to customers who have booked flights scheduled to depart after 7 p.m. Thursday.

It may be recalled that Independence Air, previously known as Atlantic Coast Airlines, originally operated connecting flights for United Airlines. It became a low-fare carrier under its own brand only in June 2004. The 2,700-employee company built up a route network serving 36 destinations from its Dulles hub.