Independence CEO Says He Doesn't Regret Gamble

The chief of Independence Air, which shuts down tonight, has no regrets about his failed experiment to create the industry's first discount airline flying 50-seat jets.

CEO Kerry Skeen said in an interview Wednesday that launching Independence Air from suburban Washington's Dulles airport in 2004 made sense "based on the facts at the time." Independence, which is shutting down because it's out of cash, was the first U.S. airline to charge discount fares for seats on small regional jets. Independence had $300million in start-up capital but never turned a profit.

Today in U.S. Bankruptcy Court in Delaware, Independence will ask a judge to approve a liquidation.

Most of Independence's 2,700 remaining employees will go on unemployment benefits, while Skeen stands to receive a hefty sum. Securities filings show the company contributed more than $2.8 million over the last decade to his deferred compensation plan. The company declined to specify the current value. Shares in Independence parent Flyi are essentially worthless.

Skeen, 53, was the champion and chief cheerleader of Independence's unorthodox business plan. Previously called Atlantic Coast Airlines, the carrier flew for 14 years as a partner to United Airlines, feeding passengers from midsize cities to longer United flights departing from Dulles.

When United filed for Chapter 11 bankruptcy and tried to trim Atlantic Coast's contract to cut costs, Skeen and his team opted to break away instead and rebrand Atlantic Coast as a low-fare carrier called Independence Air. In late 2003, Skeen and his board also rejected an unsolicited $512 million buyout offer from fellow regional carrier Mesa Air Group.

The sale to Phoenix-based Mesa would've created the USA's biggest regional airline, one with a long-term contract feeding United. Instead, Skeen and his team went forward with their new airline. They codenamed it Goldilocks. Skeen declined to say whether he regrets passing up the Mesa offer. Mesa CEO Jonathan Ornstein called Independence's demise "a very unfortunate situation that could have been avoided."

Successful low-fare carriers Southwest, AirTran and JetBlue fly full-size jets that spread costs over more than 100 passengers. But when Independence launched in June 2004, Skeen and his advisers were banking on Northern Virginia's big population of affluent travelers to make their small-plane strategy work. The market, he said, was "screaming" for low fares. Washington and Virginia residents had to drive to Baltimore to catch Southwest flights.

Skeen says the past 18 months have taught him painful lessons. Crude oil prices spiked to $70 a barrel during Independence's short life, and rivals such as giants United, Delta and US Airways added flights and dropped ticket prices to combat the upstart. For January through September, Independence posted a loss margin of 77%.

"It's a brutal industry," Skeen said.

Contributing: Gary Strauss

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