Low-fare Independence taxis toward bankruptcy

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Aus der Detroit News:

 

Independence Air, the scrappy low-fare upstart that challenged Northwest in Detroit and Lansing, is expected to be the next airline to fly into bankruptcy -- perhaps as early as today, several analysts predicted Monday.

 

The Virginia-based airline, which launched 16 months ago with one-way fares as low as $29, is expected to file for Chapter 11 and try to reorganize, or liquidate under Chapter 7, analysts said.

 

A bankruptcy filing by Independence Air would show that even low-cost airlines -- especially those without solid cash reserves -- are struggling to survive the crisis buffeting the U.S. airline industry.

 

Northwest Airlines and Delta Air Lines filed Chapter 11 on Sept. 14, joining United and US Airways in bankruptcy. US Airways won court approval Monday to emerge from bankruptcy.

 

Independence operates five daily roundtrip flights between Detroit Metro Airport and Washington, D.C.'s, Dulles International Airport. The airline has cut flights out of Detroit and has never achieved its original growth targets.

 

But the company's presence has helped drive down fares in Detroit and other markets.

 

Ironically, Northwest and Delta are two of the major airlines that matched Independence's low fares and routes -- hurting both Independence and their own finances.

 

"I've been saying for over a year that Independence would file for bankruptcy and ultimately liquidate its holdings," said Vaughn Cordie, CEO and chief analyst at Airline Forecast in Washington, D.C.

 

"Its plan might have worked in a different environment of less intense competition, low yield and high fuel costs.

 

Rick DeLisi, director of corporate communications for Independence, declined to say whether the airline would file for bankruptcy this week. But he didn't deny the carrier was in financial trouble.

 

"We're studying all our options," DeLisi said.

 

"We have no announcement at this time."

 

Independence Air's parent, Flyi Inc., has seen the value of its shares fall 95 percent since Independence started flying June 16, 2004, after changing its name from Atlantic Coast Airlines and becoming a stand-alone carrier. Independent's stock closed Monday at 32 cents a share, down one penny.

 

Atlantic Coast Airlines operated regional jets for both United and Delta.

 

Independence long has been considered a mortally wounded airline, and many analysts expected Flyi to file for bankruptcy weeks ago.

 

"I'm only surprised that Northwest and Delta beat them into bankruptcy court," said Raymond Neidl, an analyst with Calyon Securities in New York City.

 

Whether Independence tries to restructure its operation or simply goes out of business is the key question, analysts say. If it's Chapter 11 bankruptcy protection, the airline likely will continue to fly out of Detroit, offering low fares to Washington with connecting flights to 40 destinations.

 

Independence's survival would help keep ticket prices low at Northwest and other carriers that offer service to the nation's capital.

 

Even if Independence goes out of business, other low-fare carriers such as Spirit and US Airways fly between Detroit and Washington, so it will be difficult for any carrier to significantly raise prices.

 

A month after starting in 2004, Independence moved into Lansing offering eight daily nonstop flights to Washington Dulles. Northwest, which in the past offered only connecting flights through Detroit Metro, immediately offered the same nonstop service at the same price.

 

A month later, Independence began offering seven daily departures to Dulles from Detroit Metro, again offering low-fare prices that Northwest quickly matched.

 

But that didn't last long. Earlier this year, Independence pulled all its flights from Lansing and reduced from eight to five the number of daily flights in Detroit.

 

The move was forced on Independence because it was flying with half its seats empty. In the first quarter of 2005, Independent's falling revenues of $90.9 million were below the airline's net loss of $103.8 million, signaling the carrier was in deep financial trouble.

 

And this was coming at a time when soaring jet fuel prices were hammering every airline.

 

Independence has burned through more than $100 million in cash in the past 16 months. That leaves $19.4 million in available cash, partly because the company sold four regional jets and returning 25 others to lessors.

 

"Their plan didn't work after the first 30 days, but they refused to change it," said Michael Boyd, an airline expert from Evergreen, Colo.

 

Boyd said Independence was recouping 9 cents a seat mile per ticket when the carrier's expenses equaled 19 cents per seat mile.

 

"Independence will either shut down completely or change its system dramatically," Boyd said.

 

"But either way, it's going to be ugly."

 

You can reach Joel J. Smith at (313) 222-2556 or jsmith@detnews.com.