The Islander

THE ISLANDER

Cape Air builds a prosperous 135 business with compassionate approach

BY john boyce, contributing editor

November / December 1999

HYANNIS, MA — For Dan Wolf, personal ethics and values are not only a means to a satisfying life, they are the means, the underpinning, to a prosperous business.

Wolf, the president of Cape Air/Nantucket Airlines headquartered at Barnstable Municipal Airport in this Cape Cod city, has imbued his company with a simple philosophy of sharing the wealth and it has paid off handsomely. In ten years, Cape Air, the original company name, has merged with Nantucket Airlines and has grown from one aircraft flying one route into the largest independent regional airline in the United States, serving island and mainland markets in New England, Florida, North Carolina/Virginia, and the Caribbean.

Explains Wolf, "My experience has been that if you believe in other people and trust other people and have high expectations for other people, you are very seldom let down in life. That's the way I like to live and for me it really works.

"And I think for the company it really works; that philosophy makes us a better company and makes us more successful."

Cape Air/Nantucket operates 150 scheduled flights a day during season with 47 eight-place Cessna 402s. The average flight is 45 miles and projections for the current fiscal year are that the company will fly between 20 and 25 million passenger miles and carry 520,000 business and holiday passengers, up from last year's 450,000 passengers.

Employee Ownership
The key to the company's success has been Wolf's steadfast commitment to serving his employees and his markets first before personal or corporate considerations. The symbol of his attitude is the company mission statement in the form of an acronym: MOCHA HAGoTDI (mocha hagotti) — Make our customers happy and have a good time doing it.

Part of the good time for employees is having the opportunity to own part of the business. When three of the company's original investors sold out, Wolf immediately created an Employee Stock Ownership Plan (ESOP) (see sidebar) and he has kept the company independent of major airlines so as to be able to better serve his market communities.

"Philosophically," Wolf says, "I have always believed in employee ownership... To have a successful ESOP, and this is why we did it, you have to philosophically believe that the employees who are creating the value and who have really worked hard to build the company deserve to own some of it, and the ESOP is a wonderful vehicle to do that. It's an egalitarian vehicle; there's no individual sitting around determining who gets what percentage of the ESOP. Philosophically, we just believe that the employees who are here day in and day out building the company should own some of it."

Concerning his decision to keep the company independent, says Wolf, "If we were a Delta Express or a USAir Express, we would be setting up a schedule which was convenient to feed people to those airlines' flights in Boston. We're not bound to do that with one airline, so what we do when we set our connections is we sit down and we say, ’What is the service, let's say, from Boston to Los Angeles?' We look at how best to connect to the destinations rather the airline we're connecting with.

"If we were a code-share we would first and foremost need to look at who we are connecting with and what their schedule is. We're much more driven by the demand of the customer; where they're going to want to end up going and making good connections."

A Natural Development
The ESOP was a natural outgrowth of the way the company is managed. It never had a monolithic management structure. Wolf is the head man but he acts more as a guide and a scout for the company's growth. The growth itself is managed and accomplished by the 30 to 35 managers and the nearly 500 employees who are encouraged to walk through the open doors of the company offices and give opinions and ideas about their departments and the company.

The company managers are encouraged to have monthly or bimonthly meetings with the employees in their station or department to not only impart information but to receive it. For his part, Wolf, in alternating years, will meet with the entire company and give a presentation or he will go to every department and station throughout a year and meet with small groups of ten to 100 employees, depending on the department.

Wolf says that "in a more traditional management style the employees are not going to understand or feel a part of the company even though they may own part of it. In this case, the employees already felt a part of it before they owned any of it.

"...{b}ecause of the atmosphere people feel pretty free to question, throw open, ask, which is great. We also have an internal newsletter that's published, on average, every six weeks to two months. That's another vehicle to communicate with everybody and get the word out on certain issues. One of the challenges as we grow is facilitating internal communication so that everybody not only feels that they own some of it, but they can know what the heck's going on."

Route Expansion Possibilities
One thing the employee/owners will be hearing about is the company's possible expansion into longer routes which will necessitate the purchase of bigger, faster aircraft like the 19-place Beechcraft 1900 or the 36-place Shorts 360.

"We want to continue to expand into niches that from our own experience are served well by moderate fare, short haul, high frequency service. We're also looking at options to expand into larger, faster equipment that would expand our service parameter. We don't like flying more than 140 miles with a 402, about an hour's flight. If we get into bigger and faster equipment we will look at expanding the service parameter to 200 to 250 miles, which opens a lot of similar niches."

Wolf adds that Cape Air will be investigating routes that are underserved and some "monopoly routes where the service could be better, quite frankly."

COORDINATING WITH MAJORS
Although Cape Air/Nantucket maintains its independence, Wolf says that a large measure of the company's success is due to the "tremendous coordination" with major airlines.

"We have interline agreements with all of them. That includes baggage, tickets, transfers. We're on the Sabre system so that we can make reservations and ticket passengers on any of the majors; we can sell their tickets and they can sell ours. There is complete integration.

"When we look at our schedule, we look at making a schedule that will be convenient for connections at our connect points, which are Boston, Providence (RI), Norfolk (VA), Ft. Myers (FL), Ft. Lauderdale (FL), and San Juan (U.S. Virgin Islands). We look at feeding them and having outbound schedules that are complementary."

Cape Air/Nantucket has several joint fare arrangements with major airlines. But while they work well when they're used, Wolf says that because, in today's highly competitive market, they are an oddity, travel agents and other airline agents don't seem to know how to pull them up on the computer.

"We have these great joint fares that we sell," Wolf says, "and we encourage our partners to sell, but they're not sold as much as they could be. I think joint fares might very well come back as sort of a mid-step alternative to code sharing. It's good for the public because it offers them a reduced fare capability and it's good for the airlines because they can get into bed together without completely surrendering their identities."

SELLING AIRCRAFT
When Cape Air first began operating, the investors set up Hyannis Air Leasing "as a vehicle to buy the airplanes and then lease them to the airline, because at the beginning the airline didn't have any financial strength," Wolf explains. However, as the company grew stronger, it began to buy its own aircraft rather than lease them. Currently, Hyannis Air Leasing owns five of the airline's aircraft.

While Hyannis Air Leasing operates as a separate company, Cape Air/Nantucket is a Cessna service center, parts distributorship, and aircraft dealership under the same corporate banner. The company has been a licensed FAA aircraft dealership primarily for the purpose of buying and selling the airline's aircraft. But when Cessna approached the company about becoming a dealership in 1997 for its new line of single-engine aircraft, it agreed.

"Since we already were a service center on Cape Cod," says executive vice president Scott LaForge, one of the two original owners of Nantucket Airlines, "we thought as part of fostering and enhancing the relationship with Cessna, we agreed.

"...The dealership is probably less than one percent of our revenue but, that being said, it's something we try to keep alive and it fits into our Cessna relationship."

LaForge reports that the company sells five or six new aircraft units a year.

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