How Independence Air Lost Its Wings

Jan. 3, 2006 — -- It was another noble attempt to create a new airline, but with Independence Air's announcement Monday that its last flights would land Thursday evening, yet another so-called low-cost carrier has bitten the dust.

While the outcome this time was hardly surprising for a small airline that was scrambling to survive in bankruptcy while looking for a buyer or investor, the failure further underscored the old but true adage that to make a million dollars in the airline business, you simply start with a billion.

Independence Air flew for 18 months on the infrastructure of the old Atlantic Coast Airlines (which flew for 15 years as an arm of United). But promises of sustained, low-cost fares ran smack into the same reality that's savaged so many other startup airlines: No matter how good or exciting the promotions or the interiors, and no matter how friendly and enthusiastic the airline personnel, ultimately, the crucial goal of gaining traveler loyalty depends on only one element: the price of the seats.

In the case of Independence, there were simply too many competing airlines willing to offer service on the same routes while essentially subsidizing the artificially low fares that matched what Independence was charging. And in the end, Independence's pockets were not as deep as its competitors.

Impact to Independence's Hubs

Whenever a new airline goes away and leaves one or more established airlines still serving its cities, the assumption is that prices will rise.

Certainly one of the results of any deeply discounted airline coming to town is a tendency for the existing airlines to meet the new lower fares, regardless of whether it makes economic sense. Southwest, an extremely well-established and mature airline that specializes in low fares, has had that effect many times in many cities.

But while Independence Air may have influenced fare reductions in some places, it never became a sufficiently large or robust threat to significantly alter the landscape of existing fares, thus only the loss of Independence Air's specific fare structure and promising service will be felt.

And as far as overall flights, Independence served many large airports, such as Atlanta, Boston, Chicago and Detroit, and they will be essentially unaffected by the loss of a few flights. Even the smaller terminals served by Independence -- such as Albany, N.Y. -- have airlines like Continental, United, U.S.Airways and Northwest to fall back on.

The sad truth is, the loss of this airline and the 2,700 jobs that go with it will be of little significance in the grander scheme of things, especially in an industry sporting an essentially insane, below-cost pricing structure that has already caused the loss of tens of billions of dollars and forced most of the so-called legacy carriers toward the same financial black hole that just swallowed Independence Air.