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Watch the trailer at: http://www.foxsearchlight.com/theclearing/index_nyt.html \----------------------------------------------------------/ Regional Carrier Sheds Its Partners to Fly Solo June 16, 2004 By MICHELINE MAYNARD As the East Coast regional carrier operating flights for United and Delta, Atlantic Coast Airlines has basked in the highest per-passenger profits of any domestic airline. Today, it is giving all that up, voluntarily, to take a shot at the industry's hottest game. Atlantic Coast's new low-fare carrier, Independence Air, begins flights this morning from its hub at Washington Dulles International Airport to Boston, Newark, Chicago, Atlanta and Raleigh-Durham, N.C. Atlantic Coast is in a unique situation in the industry, transforming itself from a partner to a low-fare player overnight. Unlike many start-ups, which timidly begin service with a handful of flights and aircraft, Atlantic Coast is swaggering up to the table with a big stack of chips. Using the same regional jets it flew for United and Delta, freshly painted in shades of turquoise and navy, Independence will take on its old partners, relying on its 15 years of experience flying for them. Flying planes under the names of United Express and Delta Express gave it relationships at airports, allowing it to build its route system quickly. Even so, Atlantic Coast, which achieved healthy profits by charging airlines a premium over the cost of transporting each traveler, must now, charging one-way fares of $39 to $199, try to make money by keeping costs as low as possible. That shift might seem like a bad strategy. But Atlantic Coast's chief executive, Kerry B. Skeen, saw little choice: United, which filed for bankruptcy protection in December 2002, wanted sharp cuts in the fees it paid the airline. And Atlantic Coast expected Delta Air Lines, which has threatened to file for bankruptcy protection, to seek similar cuts at some point. "Your profits are only guaranteed as long as your partner survives," Mr. Skeen said in an interview this week. "We thought the best thing to do was get out of the nest." But United is not pleased. Even before Independence put its first independent flight into the air, United was throwing obstacles in its way, first trying to block the venture by promising to do business with Mesa Airlines, another regional carrier, if Mesa could successfully acquire Atlantic Coast. When that takeover attempt failed, United responded with discount fares, frequent-flier deals and service to Dulles from new cities like Lansing, Mich., long the purview of Northwest Airlines. Even in the face of that, Mr. Skeen expects Independence to expand quickly. Its schedule, starting with 40 daily flights, will swell to 300 flights to 35 destinations a day by the end of August, once it severs all ties with its partners. And, starting in September, it will take delivery on its first Airbus 319 medium-range jets, allowing it to ferry passengers across the country in more comfort than the 50-seat small jets provide. That is the opposite of the way JetBlue started. It began service in 2000 with Airbus A320 jets, able to make transcontinental flights. Soon, JetBlue will add its own 100-seat regional jets, paving the way to shorter flights and more cities. With its fleet complete, Independence will pose a challenge to carriers at both ends of the industry spectrum. Michael Allen, chief operating officer at BACK Aviation Solutions, an industry consulting firm, said Independence would mean trouble for US Airways, whose home market it is invading. Most US Airways flights are concentrated at Washington's Reagan National airport, 30 miles east of Dulles, where airlines have long charged high fares because of the airport's proximity to downtown Washington. Mr. Allen said some passengers who live in Washington's outlying suburbs might choose Independence Air at Dulles, either for convenience or cost. Once it reaches its full schedule, Mr. Skeen said 90 percent of Independence's destinations would overlap with those of US Airways, including connecting flights. Likewise, Independence may also draw passengers away from Southwest Airlines, the country's biggest low-fare carrier and the largest airline at Baltimore-Washington International Airport, about an hour away from Dulles. Southwest's highest fare anywhere, $299 one-way, is $100 more than Independence charges. "There's no question that Baltimore received a disproportionate amount of business because fares were so out of line at National and Dulles," Mr. Allen said. Because Independence will not serve National airport or Baltimore, Mr. Allen does not expect competitors to match its low fares. But to hang onto passengers with a choice of airports, those rivals will have to reduce fares somewhat, he said. Independence's arrival puts a new spin on Dulles, best known as an international airport whose domestic traffic was primarily feeder flights, like the ones Atlantic Coast operated. Now it instantly becomes the nation's biggest low-fare hub. Mr. Skeen said Dulles was long overdue for more flights. "That's the reason we made the decision we did," Mr. Skeen said, figuring it had better sever its relationships with United and Delta while it had "a healthy balance sheet, and a window of opportunity with an airport like Dulles." That window may be closing fast. JetBlue is already at Dulles, with flights to Florida and the West Coast. United's low-fare carrier, Ted, began service west and south from Dulles earlier this year. The flurry, in fact, is driving some airlines away. Delta's low-fare carrier, Song, which served one Florida destination from Dulles, pulled out in April. Earlier this month, Virgin Atlantic, which hopes to start an American carrier next year, chose San Francisco as its hub over Dulles. Amid such competition, even a healthy airline can see its finances erode quickly. As such, analysts are watching to see whether Independence Air can drive its costs down. As a regional carrier, its costs per seat mile were three times Southwest's. But Mr. Skeen sees multiple opportunities to save money. He expects 80 percent of Independence's bookings to be made over the Internet, at a cost of about a nickel each, versus the $10 to $15 it costs airlines to book a flight over the phone. He sees no limit, save for lengthy international flights, to opportunities for low-fare carriers within the United States. Passengers, already accustomed to flying low-fare airlines for short distances, are increasingly getting used to taking them across country. "Anything that works for the majors," Mr. Skeen said, "can be taken away by low-fare carriers." http://www.nytimes.com/2004/06/16/business/16air.html?ex=1088396233&ei=1&en=f5cbcdc3ce4ae88b --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://homedelivery.nytimes.com/HDS/SubscriptionT1.do?mode=SubscriptionT1&ExternalMediaCode=W24AF HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2004 The New York Times Company