02/07/2005

By MATTHEW BARAKAT / Associated Press

Fledgling low-fare airline Independence Air announced a major expansion of its route network Monday, adding a series of West Coast destinations that they hope will help them fill their half-empty planes.

The expansion comes despite unanswered questions about the airline`s financial health. The airline`s parent company, Flyi, Inc., had previously warned that airplane lease payments due in January might force a bankruptcy filing.

January has come and gone, and the airline never filed for bankruptcy, but airline officials will not comment on the status of those lease payments, accept to say that restructuring efforts are ongoing.

Beginning in April and May, the airline will add service to San Diego, San Francisco, Los Angeles, Seattle and San Jose, using a fleet of 12 brand new Airbus planes seating 132 passengers. The airline previously announced service to Las Vegas beginning next month.

Flyi expects the Airbus planes to complement its fleet of 50-seat regional jets, which fly to a variety of Eastern cities from the company`s hub at Dulles International Airport, near Washington, D.C.

Company spokesman Rick DeLisi said the Airbus planes and the West Coast destinations should help the airline generate increased traffic throughout its network.

``This has always been part of our original plan,`` DeLisi said of the West Coast expansion, though the company has had to scale back its Airbus acquisitions because of its financial woes.

He said the company already has seen a lift from its Las Vegas addition.

``It`s not only a generator of business, it generates interest,`` DeLisi said. ``And it gives people a great opportunity and attractive destinations to redeem`` frequent-flyer miles.

The airline badly needs to attract more passengers. Its load factor in January was about 46 percent, meaning that planes are flying at about 46 percent capacity. The industry average is about 70 percent.

The company is projecting a load factor in March above 60 percent, thanks in part to its new Las Vegas service as well as a recent fare sale.

Anthony Cristello, a Richmond-based analyst for BB&T Capital Markets who follows Flyi, said it remains to be seen whether the new destinations will generate enough traffic and enough revenues to keep the airline afloat.

The airline continues to offer deep fare sales to draw passengers, Cristello noted.

``They are still in a `Let`s gain some passenger traction` mode,`` Cristello said.

The problem is, nobody knows exactly how the company stands on a cash flow basis, so it`s difficult to gauge how long it can continue to offer massive fare sales just to build its passenger base, he said.

It is increasingly clear, though, that Independence Air has little intention of returning to its roots as regional carrier.

Independence Air, formerly known as Atlantic Coast Airlines, launched operations last year as an independent low-fare carrier after years of serving as a regional carrier for United Airlines and Delta.

The company has had discussions with United recently about resuming its role as a regional carrier, and some of Flyi`s major shareholders have urged it to do so. But Cristello said the acquisition of the Airbus planes and the West Coast expansion seem to indicate the airline is committed to remaining independent.

Flyi lost $82 million in its first full quarter as an independent carrier. It has altered its business plan since then, cutting its flight schedule and making tickets available through traditional travel-agent networks, rather than forcing people to buy from its Web site and toll-free number.

The company gained some breathing room last month when one of its lessors agreed to take back 10 regional jets, plus six to 10 more in the future on a conditional basis. That allowed the airline to scale back its flight schedules to more accurately reflect customer demand.

But signs of a cash crunch remain. For example, the company had planned to include the seatback televisions on its Airbus planes that have been so popular for low-fare rival JetBlue. But Flyi will not include that option to cut back on costs, and instead is exploring alternative options for in-flight entertainment, DeLisi said.