Photo: GKV Associates.
Keeping the theme within the same zeitgeist, we will reminisce on one of the more unique carriers of our lifetime. Independence Air was a large flash-in-the-pan low-cost carrier in the early-2000s; FLYi had a fleet of almost one hundred regional jets at its peak! Aviation aficionados most remember Independence Air for its attractive branding and service scattered up and down the East Coast. Unfortunately, their time in the aviation industry was short-lived, ultimately serving as a classic business school case study of the consequences of a poor business model in a volatile sector.
History
Launched in 1989 as Atlantic Coast Airlines, the airline provided feeder service for United Airlines for over a decade, primarily out of their Washington-Dulles hub but also with a presence at Chicago-O’Hare. Throughout its lifespan, Atlantic Coast Airlines operated several types of regional aircraft, from the Jetstream 32 to the Bombardier CRJ-200, utilizing the callsign “Blue Ridge.”
In the early 2000s, Atlantic Coast Airlines also began to provide feeder service for Delta Air Lines with Dornier 328 jet aircraft at their hubs in Boston, Cincinnati, and New York-LaGuardia. Regarding profit, approximately 80% of Atlantic Coast Airlines’ revenues came from their United contract and 20% from their partnership with Delta.
2002 presented a crossroads for ACA. After entering a post-9/11 bankruptcy, United hired the Boston-based consulting firm Bain & Company to restructure regional contracts. Under pressure, Atlantic Coast underwent a significant cost-reduction program to remain a viable partner with United.
During these negotiations, Atlantic Coast held a contract to operate as United Express until 2010, mutually agreed upon between the two parties in 2000. However, United sought to significantly reduce their lease payments for Atlantic Coast aircraft for the remainder of the contract. A clause in the contract allowed United to terminate its ACA partnership if it disagreed with these new terms.
Atlantic Coast was determined to live out the contract with United. However, they did not sense the feeling was mutual. Seeking an alternative business plan to hedge the risk, ownership began to explore the idea of launching a subsidiary to compete in the booming low-cost market segment. This subsidiary would launch whether or not their partnership with United continued.
In late-2003, Mesa Air Group attempted a hostile takeover of Atlantic Coast to exploit the troubled relationship and ACA’s cash position. Mesa and United reached a nonbinding agreement for the carrier to operate as a regional affiliate for United should the takeover attempt succeed. However, this agreement was abandoned entirely in December of that year once the US Securities and Exchange Commission launched an investigation for a possible violation of antitrust laws.
On April 5, 2004, United and Atlantic Coast Airlines formally announced a settlement marking the end of their relationship. Atlantic Coast further revealed that their new low-fare subsidiary, Independence Air, would begin operations on June 16, calling Washington-Dulles their home. Utilizing common gates and competing on many of the same routes as United Express, Independence planned to provide an impressive network with 300 daily flights out of their Dulles hub by the end of that summer.
Often stylized as “FLYi,” Independence Air already had a readily-available fleet of nearly 100 Bombardier CRJ-200s from their days as a regional airline. To expand its reach, Independence announced it would lease ten Airbus A319 aircraft and purchase an additional ten from Airbus along with five of the larger Airbus A320. These aircraft would primarily operate to the West Coast and higher-density destinations in Florida.
As the low-cost subsidiary launched, Atlantic Coast Airlines also shifted its network of Dornier 328s flying for Delta Connection to Independence Air. These aircraft operated for Delta Air Lines for approximately six more months, leaving the fleet in November 2004.
An Independence Air Dornier 328 Jet operating for Delta.
Independence Air was initially met with financial difficulties despite its expansive network and substantial resources. Launching a new airline often entails an adjustment period before turning a profit, and the large-scale transition from a regional affiliate to a low-cost carrier only compounds the complexity.
It did not take long to become public knowledge that FLYi was struggling. In October 2004, once load factor data became available; it was revealed most flights were flying well below their already-limited capacity. Many employees quickly sought employment from other carriers in fear of losing their jobs. JetBlue Airways, a relatively new airline that was financially stable and looking to expand, was the primary benefactor of the situation.
Only a year after launching, the carrier filed for Chapter 11 Bankruptcy in November 2005. Many suitors, including Richard Branson, were interested in the airline following their filing. However, the airline was not able to attract a buyer in the time they were allotted.
Two months later, following a flight from Westchester County Airport to Dulles, Independence Air ceased operations on January 5, 2006, with over 2,700 employees losing their jobs. Aiming to launch a new regional affiliate, Northwest Airlines purchased Independence Air’s operating certificate in March 2006, eventually launching Compass Airlines.
Business Model
Unfortunately, Independence Air could not connect its aspirations to business success. Fuel costs were already wreaking havoc on all US carriers, and competition was too volatile. At the beginning of the decade, low-cost carriers accounted for only four percent of the market share industry-wide. In 2004, when Independence launched, the market share had skyrocketed to 25%. Additionally, United had just launched a low-cost subsidiary based at Washington-Dulles, creatively named TED.
Speaking of United, the legacy carrier was more than ready to protect its Dulles hub. They never seemed to take Independence Air seriously, rewarding loyal customers with free flights in exchange for volume out of the Washington, DC Metropolitan Area (including Washington-Reagan and BWI airports). A promotion offering free flights is unheard of from legacy carriers and indicates they did not expect Independence Air to last very long.
FLYi had four available fares to choose from, all considerably discounted. This fare structure allowed for affordable feeder service to smaller communities with a reputation for being expensive. Their frequent flyer program, the iCLUB, was notable because they rewarded customers based on the dollars spent versus the standard approach of rewarding miles traveled.
FLYi launched with extensive resources, already having an established network at a central hub and over one-hundred aircraft. Song, a competitor, did not even equate to half of Independence’s fleet. However, using much larger Boeing 757 aircraft was much more profitable.
Unlike other low-cost carriers, Independence did not operate a single fleet type or focus on point-to-point flying. Their network comprised 37 destinations at their peak, a mix of small and large markets. In the larger markets, Independence’s presence resulted in little change. However, some smaller markets did report a reduction in airfares.
The model combining 50-seat aircraft with low fares required maximum utilization to even have a chance at achieving the desired profit margins. Volume was so high that, despite carrying over 2 million passengers in its first six months, load factors only hovered around 50 percent. The airline had hoped that adding the Airbus A319, a 164% capacity increase from their fleet of Bombardier CRJ-200s, would help solve this dilemma. The airline would never take delivery of any of their five Airbus A320s.
Marketing
The concept for the airline’s branding was to create an “unairline-like airline,” positioning itself to “Challenge the status quo to make travel faster, easier and more interesting.” In collaboration with Baltimore-based GKV Associates, Atlantic Coast decided on “Independence Air” as the name for their new airline.
Notable advertising campaigns aimed to connect the brand to consumers through its employees. According to Gallup Consulting, an airline’s customer service impacts performance four times more than advertising. FLYi recognized and sought to address the need for an improved customer journey. In fact, in 2005 (their only full calendar year of operation), Independence Air was recognized by touted research firm Market Metrix as the “#1 Airline for Customer Service.”
FLYi prioritized hitting the ground running in the Washington, DC, Metropolitan Area, knowing it would be pivotal to their success. Thus, they underwent significant marketing efforts before even completing their first flight. The airline began local outreach, including decorating a fleet of trucks promoting their extensive Dulles network. Additionally, Independence Air reached a three-year deal with the NFL’s Washington Redskins to be the team’s official airline.
Like most other low-cost airlines, FlyI’s marketing appealed to a younger crowd in an attempt to maximize no-frills travelers. Tickets for some of their best-performing destinations sometimes reached as low as $29 one-way. The airline also innovatively replaced standard safety demonstrations by inflight crews with recordings of celebrities, such as Mia Hamm and Chuck Berry.
FlyI Today
Honestly, there is not much left of Independence Air present day. The harsh reality is FLYi’s exit from the marketplace did not result in much noticeable change. A few former CRJ-200s still fly today for regional carrier SkyWest Airlines and can be found with tail numbers ending in “BR” (for Atlantic Coast’s callsign “Blue Ridge").
Dulles remains an expensive place to operate today for carriers not named United. As far as United is concerned, FLYi serves as an example of what other carriers can expect should they attempt to compete at their Dulles hub. For this reason, most carriers looking to serve the Washington, DC, Metropolitan Area elect to serve Baltimore-Washington International Airport, a little under an hour up the road.
If you are near an airport frequented by unscheduled charter operator Ultimate Jet Charters, they do operate two former Independence Air Dornier 328 Jets, registered N406FJ and N411FJ. FLYi's fleet of Airbus A319s lives on today with carriers spread across the globe, primarily through the well-known lessor AerCap. However, there is nothing really indicating their former history - all have been reregistered on the outside and reconfigured on the inside.