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Cape Air spreads its wings

Despite industry's woes, this carrier's growing

By Nicole C. Wong
Globe Staff / October 16, 2008
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HYANNIS - Buy a Cape Air ticket, and you'll get a cramped seat that doesn't recline, on a plane that doesn't have a toilet, on a flight that doesn't offer pillows or peanuts.

Yet while higher fuel costs and a travel slowdown have caused major carriers to cut capacity and several regional airlines to shut down, Cape Air this year expects to post its largest annual growth ever, because of its strategy of offering frequent flights on small planes to hard-to-reach communities.

The Hyannis-based regional carrier will have added nine routes in the 12 months ending in November, 33 percent more than it had in November 2007.

By the end of 2008, it will fly its planes 37 percent more hours. And while the Air Transport Association of America Inc. projects the US airline industry is poised to report $7 billion to $9 billion in losses this year, Cape Air expects to earn a profit on its estimated $68 million to $70 million in revenue.

"High-frequency, short-haul markets really are our bread and butter," said Cape Air's president, Daniel A. Wolf. "It's how we became successful."

Since it launched service between Boston and Provincetown in 1989, Cape Air has grown into the country's largest independently owned regional airline, based on the 656,000 passengers it carried in 2007 in New England, Indiana, Florida, the Caribbean, and Micronesia.

The linchpin of Cape Air's success has been a business model that centers on a fleet of 55 twin-piston-engine propeller Cessna 402 planes, each of which holds nine passengers. The small planes shuttle passengers distances of 200 miles or less, primarily between leisure spots located beyond bodies of water or other geographical hurdles.

By using small aircraft, the carrier can offer flights more frequently, which increases the chance the schedule will be convenient and attract more passengers like Miles Fish, who recently flew on Cape Air from Boston to Martha's Vineyard. Fish said he likes the little Cessnas, which fly about 20,000 feet lower than bigger planes. "One of the nice things about taking these smaller planes is they don't go too high," Fish said. "You get a view of the city."

Cape Air has also avoided the problems that most carriers have had paying for jet fuel because its fuel costs haven't risen as much. Cape Air uses aviation gas instead of the jet fuel most carriers use. Aviation gas has always been expensive, but jet fuel prices have caught up, soaring 60 percent during the first eight months of 2008, compared with the same period last year. While other airlines are struggling to keep up with the surging fuel expenses, Cape Air has already budgeted for the big bills.

"We haven't been impacted by the spike in fuel as much as everyone else has," said Andrew W. Bonney, vice president of planning. Indeed, this year's spike in fuel costs and the downturn in leisure travel are "stopping the tremendous double-digit growth rate" that regional carriers have enjoyed for much of the past decade, said Roger Cohen, president of the Regional Airline Association.

Cape Air continues to expand, though. A month ago, it turned the Albany, N.Y., airport into a new hub with connecting flights to three upstate New York communities. In November, it plans to launch service between Boston and both Rockland, Maine, and Lebanon, N.H.

"There aren't too many other airlines like Cape Air," said Henry H. Harteveldt, principal airline analyst at Forrester Research Inc. "They've been prudent, and that prudent behavior and discipline has contributed greatly to their success."

Additionally, the carrier, whose viability used to hinge on shifting its fleet and workforce from one region to another to take advantage of seasonal shifts in vacation travel, is now picking up several federally subsidized, year-round "Essential Air Service" routes, which provide communities that are not major destinations for big airlines with service. Most regional carriers this year petitioned the government to let them out of their Essential Air Service contracts because the fixed subsidy no longer covers the rising costs to fuel half-empty flights.

But Cape Air has succeeded with its year-old Essential Air Service route between Boston and Rutland, Vt. Using an aircraft half as large as the plane flown by its predecessor, CommutAir, has allowed Cape Air to slash fares 50 percent and boost flight frequency 75 percent.

As a result, Cape Air attracted 143 percent more passengers between November 2007 and August 2008 than CommutAir did during the same period a year earlier, Cape Air said.

"Instead of using the subsidy money to fly more empty seats, which is what happens with the bigger planes, we're using the subsidy money to offer lower fares," Wolf said. "When you offer fares like that, you can stimulate the market."

Despite Cape Air's success, the carrier is experiencing some stress. Last month, it suffered its first fatality when pilot David D. Willey took off from Martha's Vineyard in heavy rain and crashed the empty plane. He was en route to Boston to pick up passengers.

"After 19 years, it's not anything you're ever prepared for," Wolf said. But "there's an amazing tradition and culture here of safety, and that continues on."

Nicole C. Wong can be reached at nwong@globe.com.

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