Rising gas prices, industry troubles may have impact

By Matthew French
Staff Writer

When FLYi Inc., the parent corporation of Independence Air, last month issued its third quarter earnings report, the news was not good. The Dulles, Va.-based company had lost nearly $83 million in the third quarter alone, leading to speculation of a bad fourth quarter and the possibility of a bankruptcy declaration as early as the beginning of next year.

Despite the media hand-wringing, the only discount airline flying Charleston says it has no plans to cut back flights. In fact, the company is even this month expanding service to Charles­ton.

According to Rick DeLisi, director of corporate communications for FLYi, Charleston has outperformed many other markets around the country and a ramp-up in service is in the works.

“Charleston was definitely an immediate success and the market has performed particularly well,” DeLisi says.

An airline typically offers a couple of planes and flights until it gets a solid foothold in a market before expanding, he says. But that isn’t the business model for Independence Air. Independence decided to launch with a full schedule in many cities and wait for the capacity to build.

“We have offered more capacity in a shorter time than any airline in history,” DeLisi says.

Independence flew its first passengers in 1989 as the Dulles-based partner to United Airlines and, starting in 2000, for Delta Air Lines as well. Then, the company operated under the name Atlantic Coast Airlines. In December 2002, United went into bankruptcy and offered all of its partners what FLYi’s web site calls a “significantly inferior” contract. The company opted to go in a different direction and launched Independence Air in late 2003.

Currently the entire airline industry is in bad shape. Large carriers are filing for bankruptcy protection after diminished flight loads and increased operating costs cut heavily into bottom lines. Even discount airlines like Independence weren’t immune to market factors such as the skyrocketing cost of fuel.

“There’s no question that we and the whole industry are facing the most brutal economic conditions,” DeLisi says.

A generally accepted rule in the industry says an airline must book about 70% of its flights to break even, but Independence Air has managed between 45% and 50% over the last two months.

However, DeLisi doesn’t think the airline has anything to worry about with those percentages. “November and December are usually characterized by heightened periods of travel around the holidays, but those can be offset by a very soft period leading up to them,” he says. Because of widespread acceptance in Charleston, the company recently announced new, nonstop flights from the Lowcountry to Tampa and Orlando, Fla.

Having a low-fare airline in Charleston is a boon to both business and pleasure travelers. After waiting on a list for 15 years, Larry Jones, president and chief operating officer of Advertising Service Agency LLC in Mount Pleasant, finally reached the top of the list to gain season tickets to his favorite football team, the Washington Redskins. The timing, he says, couldn’t have been better.

Jones, a Charleston native, says that if Independence had not chosen Charles­ton as one of its destinations, making the games would have been much more difficult.

“I probably still would have done it, but I would have had to pay a lot more for flights, driven up for a few games, or found another airport to fly out of,” he says. “I probably wouldn’t have attended as many games.”

DeLisi says the higher cost of airline fuel has hit everybody in the industry the same way, creating a level—albeit mired—playing field. The airline had $345 million in cash at the end of June, which has since decreased to $198 million cash on-hand at the end of September.

“Virtually every airline is in a cash deficit right now,” he says. “The biggest difference for us is that we’re still fighting for customer acceptance and longevity in the marketplace. There’s just no substitute for time and exposure in this industry.”

Under current lease terms, the company must pay about $80 million in January. Earlier in October, the company’s shares fell after an analyst suggested the company may seek bankruptcy protection ahead of those payments. The company has said it is looking to delay or defer those payments until a later date.

Filing for bankruptcy protection ­doesn’t necessarily mean the end of an airline, but it’s never a good sign. In the early 1990s, America West, Continental, Midway Airlines, Pan Am and TWA all filed for bankruptcy. In 2004, only America West and Continental are still in service. But after the huge hits the industry took post-9/11, some of the largest carriers, including US Airways, United, Delta, ATA and Air Canada, have either filed for bankruptcy or have come close.

Independence Air isn’t Charleston’s first shot at a low-fare airline—the city at one point had low-fare airline AirTran, but the company left the Lowcountry four and a half years ago.

The Charleston Airport’s “Fly Charleston” campaign, launched in late 2003 to attract a low-cost airline to the area, is what attracted Independence Air in the first place. Now the Chamber of Commerce’s efforts have shifted from attracting low-cost service to Charleston to ensuring Independence Air’s success in the market.

Mary Graham, the Chamber’s vice president of public policy, says the chamber met with FLYi representatives in late October to discuss what the local business community can do to further help the airline.

“We have to raise awareness in the business community that if we want to keep Independence here, we have to fly them,” says Graham.

Graham says an ongoing discussion about a possible program to offer incentives to businesses and corporations to book their travel through Independence is in the works.

Regardless of FLYi’s potential troubles, it looks like the discount airline will continue service to and from the Lowcountry. However, if the industry continues its current three-year downward ­spiral, the future for Charleston’s only low-fare airline may be at risk.

Matthew French is a staff writer for the Business Journal. E-mail him at mfrench@crbj.com.

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