Revenue Falls Short Of Expectations

After burning through more than $147 million of its cash reserves in the third quarter, Flyi [FLYI], the parent of Independence Air, is taking steps to cut back on its expenses.

Still not totally independent, Flyi posted an $82.7 million loss, or $1.82 per share, on revenue of $119.6 million in the three-month period ending Sept. 30. During the third quarter, Flyi was still flying for United Airlines [UALQ] and Delta Air Airlines [DAL]. Its code-share arrangement ended in August with United and it ends this week with Delta.

A year ago, the company earned $21.3 million on revenue of $221 million from its code-share contracts.

Flyi CEO Kerry Skeen told analysts last week that the revenues from Independence had not met expectations. The carrier had a load factor of 44.4 percent in September. Skeen had earlier projected load factors reaching 60 percent by summer's end.

Rising fuel prices - now much higher than when its business plan was crafted - has also hurt the carrier.

To fill the planes, Skeen said the carrier is reversing a decision made in the early planning process by listing its flights on Galileo, a global distribution system used by travel agents. The change, he said, should result in greater business travel booking. Following the lead of established low-fare carriers, Independence initially tried to avoid using a third-party distributor to hold down its costs.

Prior to the earnings release, UBS analyst Robert Ashcroft had predicted that Flyi would seek bankruptcy by the end of the year (CRAN, Oct. 25). A motive, he cited, is a $98 million lease payment due Jan. 2, 2005.

Skeen said that the carrier is now negotiating to reduce or delay the payment on its Bombardier [BBD] CRJ 200 jets. The carrier ended the quarter with $198 million in cash on hand. Skeen would not predict what the cash balance would be at year's end. Without being specific, he excepts large fourth quarter losses.

Flyi in December will begin raising some of its lower-tiered fares by more than $10 a ticket. With the December schedule, Skeen said the carrier would reduce its frequency into cities in the Northeast and Midwest. The changes are designed to boost load factors and were described as a "seasonal adjustment" with more planes being directed to Florida routes.

A cornerstone of the Flyi business plan is the use of Airbus 319s on leisure and long-haul routes. While it has received its first two A319s, Skeen said the carrier has not been certified to fly the planes. It was scheduled to begin Airbus flights to Orlando and Tampa this week. Instead, he said, it will fly those routes with its RJs.

>>Contact: Kerry Skeen, Flyi, (703) 650-6019.<<