Independence Air grounding to aid rivals
Reuters | Jan. 05, 2006
The grounding of Independence Air, a regional airline turned low-cost carrier, is expected to provide a modest boost to its rivals, especially on the US East Coast, where its discounting has depressed fares.
Independence's parent, FLYi, announced on Monday that its last flight would be on Thursday because there were no offers for the airline that met the needed criteria to keep it going.
FLYi filed for Chapter 11 bankruptcy protection in November but unlike many competitors failed to get much benefit from the creditor shield. Analysts had questioned Independence's chances from its June 2004 start because of its reliance on inefficient regional jets.
US Airways, AirTran, Southwest Airlines, JetBlue Airways and bankrupt Delta Air Lines will likely benefit from Independence's liquidation, analysts said.
"Overall, certainly pricing is going to improve for the airlines on the East Coast," said Susan Donofrio, an analyst with Fulcrum Global Partners. "We certainly look at it as a revenue positive."
On a longer-term basis, the Independence Air story may serve as a cautionary tale for other would-be airline start-ups. For all the success of JetBlue from its start-up nearly six years ago, the hurdles to success remain daunting.
"For a new start-up, you cannot underestimate the competitive response of one of the major airlines if you try to move into their area and attract customers by discounting," Corridore said.
In the case of Independence -- which had flown as Atlantic Coast Airlines, once a feeder carrier for Delta and United Airlines -- competition was stiff from United once Independence began operating on its own.
"It shows how tough it is to be a small player and really be able to get a foothold in the industry," Donofrio said. "I think it bodes well for larger airlines and it may prove difficult for other start-ups."
It was unclear whether United or regional carrier Mesa Air, which both had been reported to be interested in some of Independence's assets, still planned to place bids.