Case Study: Independence Air

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MBAA 642|
Alois Nyandoro|

Dr. Bruce Ellis|

A brief history
Independence Air started as Atlantic Coast Airline (ACA) on 15 December 1989. It operated as a feeder service as United Express for United Airlines and Delta Connection for Delta Airlines. United withdrew from the contract after ACA labor and management objected to a request for concessions for a lower fee-for-departure agreement. Consequently, ACA reinvented itself as a low cost carrier known as Independence Air and began operations on 16 June 2004. Independence Air was based at Washington Dulles International Airport. In February, 2005 (slightly over 6 months after inception), one of Independence Air’s aircraft was repossessed after the company missed a lease payment, after trying and failing to restructure the lease. Later that year, three more aircraft were sold or repossessed. In November 2005, FLYi, Inc., their parent company, declared bankruptcy, citing rising cost in the airline industry as the reason why its low cost strategy was failing to succeed. After failing to find a suitable buyer to keep the planes flying, Independence Air ceased operations on January 5, 2006. Route Structure

Independence Air chose Washington Dulles International Airport as its hub. They had 36 gates from which they planned for 8.3 daily departures to more than 1200 city pairs mainly on the east coast with regional jet connections, with six or more daily round trip connecting opportunities for most pairs. According to the Airline Business, 55% of the East Coast connecting markets that Independence would be serving, did not at that time have low-fares service. At their peak Independence Air offered 600 daily flights to 37 destinations including a few West Coast destinations. These were later reduced to just 200 daily flights. During the first half of 2005, Independence Air expanded its network to include Las Vegas and West Coast services to San Diego, San Francisco, Los Angeles, San Jose and Seattle, using a fleet of 12 new Airbus A319 jets seating 132 passengers. The choice of Washington Dulles International Airport as the base provided some significant advantages to Independence Air. IAD is an international gateway with a great number of legacy airlines operating international and intercontinental routes, generating connection traffic. It also provides for significant O&D passengers that makes it ideal for a hub airport. The fact that IAD did not have another low fare service was another plus for Independence Air. Fleet Type and size

Independence Air started off with eighty seven 50-seater Canadair CRJ-200 100 series Regional jets and later added a dozen 132-seater A319. It is the operation of the 50-seater regional jets that defied conventional wisdom. According to Jim Parke, an airline analyst for Raymond James Financial, the regional jets have a 30% higher operating cost per available seat compared to bigger planes used by other LCCs such as the B737 and A320 operated by Southwest and JetBlue respectively. The consequence of this for Independence Air was that they required higher load factors to break even. In actual fact, according to Independence Air’s marketing vice-president Eric Nording, they required 70% load factors to breakeven. Starting at such a high note with little brand recognition and formidable competition, such high load factors were bound to prove to be a challenge to achieve. The later introduction of the much more suitable plane (A319) was too little too late.

Independence Air entered service as full grown low-fares airline operating regional jets. After its emergence it became known for offering very low airfares: as little as $29 one way to Florida from Washington Dulles International Airport. According to Carrey (2005), Independence Air said that it was going to undercut existing fares on its 50-city route network by 30%-70%. The airline...
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