FLYi's business plan is falling apart (unfortunately)

[071qhc]

It seems that almost every assumption the FLYi management made when starting out is proving to be wrong. First Mr. Skeen and the FLYi management said that they realized that the CRJ has relatively higher seat mile costs (than mainline jets), but that they would make up for this by flying the planes more hours (high frequencies, short turns). But because they initially unfortunately went the Southwest and JetBlue route of only having their admitedly low fares available on their website and 800 number (because joing Expedia, Travelocity, etc, would cost too much, they said), BUT unlike Southwest and JetBlue they don't have the name recognition AND gigantic advertising budget so those high frequencies and low fares still only led to 40% to 55% load factors. They assumed that oil prices would be in the $30 per barrel range and that assumption (with all the instability in the world) is also proving to have been VERY wrong especially since United and Delta are no longer paying FLYi's fuel bill. So after posting their HUGE (many, many many millions, I forget the exact number) loss last quarter they said that they would make their fares available to the Galileo system for travel agents but I STILL can't find their fares on the major internet travel sites (Expedia, etc), where most people now go to book their own travel arrangements, bypassing travel agents all together. And also, after that big loss, they said that the high frequency plan wasn't working so they would have to reduce frequencies in MANY of the markets they fly, so now you AGAIN have the problem of the high per seat mile costs of the CRJ because they are not in the air as many hours as initially planned. PLUS, as a result of the higher then expected losses, FLYi announced that fares would be RISING in MANY of their markets. Which brings us to their biggest issue...the AIRBUS problem. They only have two on the property (which hopefully will finish proving runs soon) and said that they would now have to defer any more deliveries unti 2007 because they need to conserve cash. This is a VERY big problem because management was banking on the Airbus to compensate for the CRJ's relatively high costs. And obviously, United is able to match whatever fares FLYi is charging out of their Dulles hub because (fairly or unfairly) they have bankruptcy court protection to fall back on. And other carriers like Northwest and Delta, etc, are matching FLYi's fares on routes where they directly compete, thus eliminating any fare advantage and giving people no real incentive to try FLYi, (because they can stay with their usual airline, get the same fare AND earn their usual frequent flyer miles and points) and that's IF people can find the fares because they still aren't on the major travel sites, as I said before. SO, you've got CRJ's sitting on the ground longer then planned, fares rising, fuel ridiculously expensive, only two Airbuses, intense fare competition from all the other airlines, fares that people can't find, and an around $80 million dollar payment due on aircraft in January. Sad to say but I think Skeen and the crew bet wrong and decided to go solo at the wrong time. It will be very interesting to see if FLYi does actually bid on that RFP that United put out for the flying AWAC has been doing. And if they do come back to UAL, you can rest assured FLYi, or ACA if they go back to that name, will receive far less compensation then United was offering last year when ACA first decided they couldn't take a hit on their compensation levels. The plot thickens!

 

[Rez O. Lewshun]

More furloughs!!

 

[ALSF 2]

Welcome to the ruthless airline industry

Cheers!

 

[Always deferred]

"It seems that almost every assumption the FLYi management made when starting out is proving to be wrong. First Mr. Skeen and the FLYi management said that they realized that the CRJ has relatively higher seat mile costs (than mainline jets), but that they would make up for this by flying the planes more hours (high frequencies, short turns). But because they initially unfortunately went the Southwest and JetBlue route of only having their admitedly low fares available on their website and 800 number (because joing Expedia, Travelocity, etc, would cost too much, they said), BUT unlike Southwest and JetBlue they don't have the name recognition AND gigantic advertising budget so those high frequencies and low fares still only led to 40% to 55% load factors."

Granted that these numbers are not great but when you consider the fact that 55% load factor for a brand new (less than 6 month old) airline using ONLY their website for bookings, flying ONLY small cramped RJs, and flying in the backyard of the #2 airline in the world, that is an accomplishment.



"They assumed that oil prices would be in the $30 per barrel range and that assumption (with all the instability in the world) is also proving to have been VERY wrong especially since United and Delta are no longer paying FLYi's fuel bill. So after posting their HUGE (many, many many millions, I forget the exact number) loss last quarter they said that they would make their fares available to the Galileo system for travel agents but I STILL can't find their fares on the major internet travel sites (Expedia, etc), where most people now go to book their own travel arrangements, bypassing travel agents all together."


The reason they did this was to allow over 44,000 businesses access to FLYi. Many companies can only book through corporate accounts listed on GDS. The problem has not been the leisure travelers. (as evident by the Heavy load factor from thurday-sunday) Getting more corporate accounts will boost load factor during the slow weekdays.


"And also, after that big loss, they said that the high frequency plan wasn't working so they would have to reduce frequencies in MANY of the markets they fly, so now you AGAIN have the problem of the high per seat mile costs of the CRJ because they are not in the air as many hours as initially planned."

UNTRUE. Give them the credit for tweaking the system. Nothing ever goes exactly as planned but good leaders will monitor, and change to adapt. The frequency is being pulled down on certain markets but the rjs are not sitting idle, they are being redistributed to markets that are heavy. For example, they cut down JFK from 16 to 12 but add 2 PIT and 2 CLT rounds.


"PLUS, as a result of the higher then expected losses, FLYi announced that fares would be RISING in MANY of their markets. Which brings us to their biggest issue...the AIRBUS problem. They only have two on the property (which hopefully will finish proving runs soon) and said that they would now have to defer any more deliveries unti 2007 because they need to conserve cash."

As opposed to not getting any. This gives the business plan, which is trending in a positive direction, time to mature and if certain financial goals are met by next year they can reschedule the airbusses for earlier.

"This is a VERY big problem because management was banking on the Airbus to compensate for the CRJ's relatively high costs. And obviously, United is able to match whatever fares FLYi is charging out of their Dulles hub because (fairly or unfairly) they have bankruptcy court protection to fall back on. And other carriers like Northwest and Delta, etc, are matching FLYi's fares on routes where they directly compete, thus eliminating any fare advantage and giving people no real incentive to try FLYi, (because they can stay with their usual airline, get the same fare AND earn their usual frequent flyer miles and points) and that's IF people can find the fares because they still aren't on the major travel sites, as I said before. "

Right and no one flies on JBLU because they can fly on united, or AA because they have a better FF program. Right. Remember load factors are increasing. Planes are now more than 1/2 full. Customers LOVE the product. Living in the DC area, FLYi has quite a positive buzz going around about it. Most people I know and have met have flown us at least once and only had good things to say.


"SO, you've got CRJ's sitting on the ground longer then planned, f"

UNTRUE

"ares rising, fuel ridiculously expensive, only two Airbuses, intense fare competition from all the other airlines,

fares that people can't find,"

UNTRUE

"and an around $80 million dollar payment due on aircraft in January."

SUBJECT TO RENEGOTIATON

"Sad to say but I think Skeen and the crew bet wrong and decided to go solo at the wrong time".

AND THE ALTERNATIVE??????

"It will be very interesting to see if FLYi does actually bid on that RFP that United put out for the flying AWAC has been doing. And if they do come back to UAL,"

DONT BET ON IT

"you can rest assured FLYi, or ACA if they go back to that name, will receive far less compensation then United was offering last year when ACA first decided they couldn't take a hit on their compensation levels.

The plot thickens!"

AGREED

 

[difete]

FlyI

It is sad to hear Fly-I going under.
Never wish that fate to anyone's carrier, sad sad.

 

[ilinipilot]

I feel very sorry for the folks at Indy but this does not surprise too many people.

repeat after me, you CANNOT compete on price alone. When will people learn that.

What makes indy different:

in-flight enterntainment like JB (no)
name recognition (no)
Coast to coast service (no)
comfortbale airplanes (no)
usefull frequent flier program (no)

The only way to compete is to offer a radically different product like JB did, or have a good hub with failing or little competition (air tran in ATL, AMWest in PHX and LV). ATA couldnt do it in Southwest's backyard.

Their one good difference is their location in DUL but if you have a choice between and upstart and SW who will you go with. The fares can be easily matched by many other airlines.

It sucks that good employees who had no say in this or influence in this got the short end, but when will egomaniacal CEO learn their lessons.

D

 

[On Your Six]

Midway Airlines All Over Again....

Did anyone notice what happened to Midway Airlines? Low-fare operations in a 50-seat RJ just don't work - especially with crap weather and constant delays on the East Coast.... You need to spread costs over more low-fare seats...

Plus, most passengers, if given the choice, will avoid RJs to fly bigger airplanes or take the train - it's the sad truth that nobody likes to talk about....

 

[Indypilot]

The business plan has not failed just quite yet. In fact they haven't even gotten close to what the original business plan called for. Were still short many busses to get to where we are supposed to be.

What has failed is the transition plan. The cushion that was expected to be there during the year to year and a half of losing money while the busses came online got eaten up by fuel costs and stiffer than usual competition. Yes it wasn't the best time to go alone, but we didn't have a choice in the timing of it.

No matter how you slice it, I would much rather be bleeding with a chance to get stiches and maybe amputate a few fingers, rather than walking around fat dumb and happy and getting my head sliced off highlander style by big papa. It was the right decision, and if we fail I'll be happier knowing we stood up to united's crap and mesa's crap. As they say now, "independence air: the cure for hope" So the rest of y'all regional pilots don't get any ideas.

I think we will survive, we'll be a bit smaller, and we might have to file to restructure but I think those calling for our immediate liquidation haven't quite seen the full extent of the resolve of this company.

 

[KingAirer]

Did anyone notice what happened to Midway Airlines?

JI wasnt a LCC.

 

[dispatchguy]

but I think those calling for our immediate liquidation haven't quite seen the full extent of the resolve of this company.

After all, you DID tell JO at Mesa to take his hostile takeover and shove it, and for that, the rest of us are eternally grateful!

 

[On Your Six]

JI wasnt a LCC.

True, but as I recall they weren't the most expensive carrier given that I used to fly them. The fact that Midway sank despite somewhat higher fares should be even more alarming for Flyi. True that Midway didn't have the volume that Flyi relies upon, but the fact is that CRJs and their relatively high CASM are not effective competitive tools in a LCC market. Flyi needs to get a lot of Airbus aircraft real fast to make a dent in its high average CASM...

 

[cgflyer]

I see alot of dread talk in relation to Indy Air. As an outsider looking in, I'm proud to see a company take a stand for principle, even if they had to take a few lumps. I see they are now flying the Air Bus, at least 2 with I think 10 total in the next few months, their load factors are increasing monthly and the cost of fuel is decreasing daily. I only play around at day trading, but with a stock under $2, I think the time is ideal to look at an upturn for this company.


I'm going to go buy a few hundred more shares and then go purchase a round trip on them to support my investment.

Good luck to all of you at Indy Air, and stay determined, the rainbow is going to turn your direction.

cgflyer

 

[I.P. Freley]

It was asserted earlier in this thread that the Airbus is still in proving runs... If this is true, why is it taking so long? I didn't mark my calendar the first time I saw a flyI Airbus, but it seems like that was around two months ago.

 

[Indypilot]

The bus passed proving runs 3 weeks ago, and we have 2 of them flying the TPA and MCO flights. The third one is down in MCO getting it's seats installed and the fourth one should be here next week. We are adding 2 round trips to MCO, and will be adding a standup to BOS starting Dec. 21. The next city to open is PBI and service with the bus starts on 02.01.05.

 

[I.P. Freley]

Thanks for the info.

 

[upndsky]

Actually, JI was an LCC when it folded. When they came to RDU, they billed themselves as a business airline and rode the dot-com bubble for a while, doing pretty well. Then the bubble burst and 9/11 happened, forcing them into BK. They reinvented themselves as an LCC. I remember flying from RDU to MCO on a brand new 737 for $49, including all the taxes. When that failed, they began flying CRJs for USAirways Express. Finally, the judge forced them to liquidate.

 

[KingAirer]

I disagree...But it really doesnt matter!

 

[NuGuy]

Heyas,

Even when the 'bus really gets rolling for I-Air, it will probably just become a revolving door for JetBlue in the very same way that the 170 has for MidAtlantic.

Get'cher 320 type, and run, don't walk to the mailbox will probably become the mantra...

Nu

 

[tuna pimp]

Getting the Airbus online is the key to FlyI's success. Bankruptcy/Renegotiation of loans and contacts is neccessary to get the carrier through the 1st quarter. If FlyI is still around by then (and I hope they are) then they'll be in a much better position with some A319s feeding the CRJs. Having fuel costs come down to around $42 or so (if it stays) will also provide some immediate relief on the cash flow side of the equation as well.

Independance is a different beast from Midway for a few reasons:
1. They're operating out of Washington so there is a much stronger local O&D base from which to build. Raleigh is not a strong O&D market.
2. They have a strong North-South feed system already in place (today this is their archiles heel but it will become a strength as they take on more Airbus units).
3. FlyI seems to have a solid buzz going with their product. It appears geared towards women, who tend to be be the primary purchaser of tickets. Song has also created an airline who's soft marketing strategy is geared towards the ladies. Bill your airline as 'hip' and 'novel'.

Getting their fares listed on some GRS systems will put pressure on their distribution costs up front but will serve to improve LF as they move forward.

Independance is taking the correct steps in reducing frequencies from second tier markets like LAN and DAY. They need to push the aircraft into some larger markets not yet served (YYZ, YUL, STL, MSP, CVG perhaps) and add capacity in markets where they are carrying their QSP share and more.

Personally I'd put my money on them surviving but it won't be easy.

Just my humble opinion.

 

[Rez O. Lewshun]

Personally I'd put my money on them surviving but it won't be easy.

Especially for the hundreds, I mean hundreds, of pilots getting furloughed....