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The Dumbest Airline In American History

Rez O. Lewshun

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THE DUMBEST AIRLINE IN AMERICAN HISTORY
By Joe Brancatelli

November 10, 2005 -- I consulted the Library of Dumb Dead Airlines--that's
a couple of big file cabinets in my attic--after hearing that Independence
Air had filed for Chapter 11 bankruptcy on Monday after less than 18 months
of flying.

I went to the Library to refresh my memory on some of the dumb ideas that
have made it aloft over the years. There was Western Pacific, which thought
it could survive by selling its fuselages as flying billboards. There was
Branson, which only flew to the Missouri resort town. Freedom Air wanted to
be the airline for in-flight smokers. There was SkyTrain and Jet Train and
Jet World and Sunworld. Airlines started by travel agents (Tahoe and
Ultrair) and carriers launched by displaced pilots (Pride and Kiwi). There
was a conga line of carriers named National, Midway, Braniff, Eastern and
Pan Am, each one predicated on the theory that adopting the brand of an
already-failed airline was the key to success. There was an airline founded
using old Japanese prop planes (MidPacific) and one or two named after an
old widebody jet (TriStar). There were sybaritic luxury airlines (Regal,
McClain, MGM Grand), misbegotten discounters (Leisure Air, Eastwind, Air
South) and even an eponymous carrier started by a disgruntled founder of
Southwest (Muse).

But Independence Air beats all of the crashed-and-burned carriers in the
Library of Dumb Dead Airlines. It is, in fact, the Dumbest Airline in
American History.

In slightly less than 18 months, Independence has gone from profitable
regional carrier to failed start-up. It has blown a huge horde of cash and
destroyed a company that just three years ago this week was selling north
of $15 a share. It has flown the wrong planes to the wrong places with the
wrong schedules at the wrong prices. It has failed in big cities and small
towns. Failed flying North to South and East to West. Failed flying big,
new jets and small, old ones. And it did it all while defying the
first-guessers who judiciously warned that Independence's business plan,
such as it was, could never fly.

Independence Air isn't dead yet--it hopes to keep flying during the
higher-cash-flow holiday period and its bankruptcy filing envisions a
court-supervised auction of assets in 60 days--but it will go to the head
of the Dumb Dead Airline list the moment its final flight touches down at
its Washington/Dulles hub.

Because Independence Air was created with the dumbest aviation concept of
all time: We got planes. We got gates. What the hell...

The gruesome tale of Independence Air starts with the bankruptcy of United
Airlines in December, 2002. At the time, an airline named Atlantic Coast
handled the United Express flying from United's Dulles hub. It also flew as
a Delta Connection carrier. Atlantic Coast had earned 31, 29 and 19 cents a
share in the first three quarters of 2002, making it one of the nation's
few profitable airlines.

When United started squeezing its independent commuter carriers for
concessions in 2003, however, Atlantic Coast resisted. Unlike the other
commuter carriers in the United Express stable, Atlantic Coast could
resist. Atlantic Coast, not United, owned the planes (a fleet of 100
50-seat regional jets) and all of the United Express gates at Dulles.
Negotiations went badly because it turned out that United had a hammer of
its own: Only United could end the contract between the two carriers.

Logic, that most elusive of commodities in the airline business, dictated
that the bankrupt big carrier and the profitable small one would somehow
work things out. After all, they needed each other and there was a Gordian
knot of entangled interests. Atlantic Coast would be nowhere without
United's reservations network and traffic and couldn't quit the contract
even if it wanted to leave. And United's international hub in Dulles would
be disrupted if it lost Atlantic Coast's planes and gates.

As the months dragged on, corporate egos were bruised and lawsuits were
filed. United even brought in the commuter industry's pre-eminent bottom
feeder, Jonathan Ornstein of Mesa Air, to make a ham-fisted buyout offer
for Atlantic Coast.

Logic did not survive the bruised egos, lawsuits and buyouts. Instead,
United and Atlantic Coast chose mutually assured destruction. In April,
2004, United released Atlantic Coast from its contract and hired as many as
six replacement carriers. It also built a new set of gates at Dulles.

For its part, Atlantic Coast took its gates and planes and created
Independence Air. The audacious concept: Build a low-fare airline at Dulles
and use Atlantic Coast's repainted, refurbished regional jets (RJs).
Management also placed an order for new Airbus A319s and decided travelers
could only buy seats directly from the new carrier, dubbed Flyi for short.

There were millions of things wrong with this plan, as everyone from
Independence's well-wishers to its enemies were quick to point out. In
fact, Atlantic Coast's stock dropped more than 20 percent on the day the
Independence Air plan was unveiled.

The market understood what everyone except Atlantic Coast's management
understood: Flyi had no passenger base of its own. It had no identity.
Hubbing at delay-plagued Dulles was risky because United was not about to
abandon its hub, US Airways was still a large player in Washington and
JetBlue Airways was building capacity there. The decision to restrict
ticket sales cut out travel agents, third-party Web sites and the big
computerized reservation systems. Worse, RJs were impossibly inefficient
and expensive to operate in the manner that Independence was proposing.
Most estimates peg the RJ disadvantage at 30 percent per seat mile compared
to the larger jets preferred by traditional discount airlines. Launching a
low-fare airline with high-cost planes was beyond hubris. It was fiscal
insanity.

Worst of all, however, Independence had no place to fly. One example is my
own home airport, Stewart/Newburgh, in New York's Hudson Valley. When
Atlantic Coast flew as United Express, it couldn't fill the three 19-seat
flights it operated each day between Stewart and Dulles. Yet Independence
Air launched Dulles-Stewart service with six 50-seat flights or 300 seats a
day.

For all intents and purposes, Independence Air was dead on the day it
launched, June 16, 2004. At its frenzied height, it operated 600 flights a
day and flew to 46 cities. It blackened the Eastern skies with suicidally
large schedules to places like Huntsville, Alabama; Lansing, Michigan;
Charleston (West Virginia and South Carolina); Albany, Buffalo, Syracuse
and Rochester, New York; Cleveland, Columbus and Dayton, Ohio; and airports
throughout the Carolinas, the Border States and Florida.

Fares plummeted to as low as $29 one-way thanks to endless fare sales, yet
Independence Air had months when it was filling fewer than 50 percent of
its 50-seat aircraft. By the end of last year, Independence was
hemorrhaging cash and gyrating like a top: It began selling seats through
all the normal channels, fiddled with schedules, lopped cities off the
route map, reworked fares and mortgaged what future it still had.

When the Airbus A319s began arriving last November, there were no seatback
television monitors (Independence had promised in-flight TV service, but
then couldn't afford to equip the planes) and nowhere to fly the planes.
First they flew to Tampa and Orlando, markets already saturated with
low-fare seats. In March, Independence launched a desperate West Coast
expansion: Airbus flights to Los Angeles, San Diego, Las Vegas, San Jose,
Seattle and San Francisco. The problem with going West? Transcon routes
were also saturated with low-fare seats. Independence's coast-to-coast
fares dropped to $69 one-way. The transcon routes were dumped even before
Independence trooped to the bankruptcy court on Monday.

Over these past 18 months, whenever observers would criticize Independence
Air's basic concept and its day-to-day execution, an E-mail would come from
someone in the airline's management. The gist of the defense: We had all
these planes. What else could we do?

What could Atlantic Coast have done? Swallowed its corporate pride and cut
the best deal possible with United. Or pursued commuter-jet flying with
other airlines. Or even liquidate when it severed its relationship with
United. Liquidation last year would have guaranteed Atlantic Coast
shareholders a nice little payout. Now they'll be wiped out in the
bankruptcy.

In fact, creating a dumb airline like Independence Air has helped no one.
Not the small cities that were seduced into supporting Independence by the
chimera of unsustainable low fares. Not Atlantic Coast's employees, who
accepted huge concessions to help launch Independence, took more
concessions this week to keep it flying and will soon lose their jobs
anyway. Not the million members of Independence's iClub frequent-flyer
program, which will almost surely disappear without a trace. And certainly
not business travelers at large, who knew a hopeless airline concept when
they flew one.

Last November, six months after Independence launched, I suggested that the
airline was trying to "make low-fare lemonade from a couple of crates of
flying lemons." A year later, Independence's lemonade stand is on the verge
of disappearing. According to Monday's bankruptcy filing, it has just $24
million in unrestricted cash after launching with a $300 million war chest.
It hasn't yet reported results for the fiscal third quarter, which ended in
September, but it racked up more than $370 million in losses during the
first 12 calendar months it operated as Independence. Logical extrapolation
suggests that Flyi has lost at least $500 million during its 18-month
odyssey.

In other words, Independence Air's place as the Dumbest Airline in American
History is now secure.
 

Piper877

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Very well written and sad but true. Thanks for the post.
 

SiuDude

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Why
Is this your Master's thesis?
 

lowslow

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Plenty
Well, I guess we ought to get 'ol Joe an end seat on a airline board. He must know exactly how to run an airline.
 

Flylo

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It's a shame you can't send people to jail for ruining other people's live through stupidity and blind, self serving, egomania.

Of course, if that were true, nobody would want to be a politician either. :)

Very interesting post, thanks.

.
 

smellthejeta

The plane I solo'd in
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afew
I have a soft spot for the FlyI guys. The guys, not the management. The sad reality is that "cutting the best deal with United" would have also been cutting their own throats. My understanding of the "deal" was that UA could sever the contract whenever they wanted. They also could change the number of scheduled departures at will. ACA would have cotinued to be bullied for lower and lower cost flying, all with the threat that if they didn't do what UA wanted, Mesa could and would.

I left ACA before the FlyI debacle began. Had I been there, AirWis would have offered me employment and matched my years of seniority up to three (I wasn't a pilot). Now, look what that would have got me? I would have still lost my job.

With the glut of RJ's on the market now, ACA would have become another Mesa one way or the other. Flying for UA, they would have had to make cuts. Flying for another carrier, they would have been forced to fly at bottom feeder rates anyway. No matter how you slice it and dice it, I really don't believe that any other business plan would have been all that great for the employees. Hell, even Boyd agrees with that assessment.

I got a kick out of the idea that FlyI would have been better off liquidating than running FlyI, because at least the shareholders would have made money. What people forget is that the BOD answers to the shareholds and the BOD sets the tone for the company. Had the shareholders not approved FlyI, they would have replaced the BOD.
 

SkyWestCRJPilot

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An interesting read but I'm surprised the author left out one of the most blaring issues: The high cost of fuel. At $30 a barrel it's quite possible that FlyI and every other carrier out there would be turning a profit and this article would never be written. The high price of oil has just intensified the competetion and everyone's losses (except SouthWest). It's surprising the author didn't even mention the skyrocketing price of oil.
 

mar

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Interesting, yes.

SkyWestCRJPilot said:
It's surprising the author didn't even mention the skyrocketing price of oil.
I thought it interesting he didn't mention that ACA was one of the original PFT airlines in the late 90s.

How did they pay for those shiney jets anyway?
 

Publishers

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In effect, what they did was exactly what the pilots on this board often advocate. They did not like the new deal, thought it was cheapening the regional airline business, and, decided they could go it alone without the support of a major. Sound familiar??
They decided to keep the bar up, to maintain the standard,,,,, Oh Well.
 

smellthejeta

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Publishers said:
In effect, what they did was exactly what the pilots on this board often advocate. They did not like the new deal, thought it was cheapening the regional airline business, and, decided they could go it alone without the support of a major. Sound familiar??
They decided to keep the bar up, to maintain the standard,,,,, Oh Well.
Publishers, I agree 100%. Nothing ventured, nothing gained. Everybody wants to talk about the crappy business plan, ignoring that the feeder contract with UA would have been certain death, without even a jury trial. At least they got a jury trial this way :) Whenever I (or Boyd) bring that up, this board (as is every place) is silent on how remaining a feeder would have clearly been a better option. If this plan was such a losing proposition, the BOD and shareholders would never have approved of it, and they would have forced the company to be sold out to Mesa.
 

Publishers

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It goes to show how difficult it is to start an airline and survive. JetBlue did it in good times and with tremendous financial support, mostly created by the reputatiuon and success of Morris Air.
These guys had some things going for them. They had an infrastructure that was experienced and in place and mostly paid for by United. What they did not have was brand recognition but the one they had was Atlantic Coast not Independence.
Did they make mistakes,,,, sure. But they were trying when they thought they had the best shot and a future with United was going to be tough. This is far from some things I have seen to qualify for the "dumbest airline" award.
Air South, Kiwi, and others far more deserving of that award.
 

I.P. Freley

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Enough
Publishers said:
They did not like the new deal, thought it was cheapening the regional airline business, and, decided they could go it alone without the support of a major. Sound familiar??
They decided to keep the bar up, to maintain the standard,,,,, Oh Well.
The management at FlyI went solo because they thought it was cheapening the regional airline business? To keep the bar up?

My, that IS rich. They did it because they thought they would make more money, not to maintain the standard in regional flying.
 

Publishers

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Freley, you obviously did not get the tongue in cheek aspect of that. It was the play on if you do not like the deal given, or force yourself to take an unsatisfactory one, you are somehow lowering the bar or raising the bar.

Obviously they thought they could pull it off and make more on their own. Instead of swallowing the United deal, here was a chance and they took it.
 

coolnamepending

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Found this on the aca-lounge...it ain't over yet!

well, it was working....nvm.
 
Last edited:

smellthejeta

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coolnamepending said:
Found this on the aca-lounge...it ain't over yet!

well, it was working....nvm.
I didn't read the deleted part, but are you talking about a rumor that Sir Richard Branson is "looking" (in whatever sense of the word) into breathing a little more life into FlyI?
 
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