For 15-year-old Cape Air, 2003 was a year of big decisions. Already an experienced seasonal airline operator with routes in New England, Florida and the Caribbean, Cape Air sought out a fourth market - Guam.

As the largest operator of Cessna 402s, Cape Air took steps to diversify its fleet. Its giant step was moving from the world of the nine-seater to the 46 seats of the ATR- 42.

At the helm of this profitable airline is Dan Wolf, its president and co-founder.

A student of political theory, organizational development and decision-making prowess, Wolf describes a very careful, methodical organization that plans for growth in two- to four-year cycles. His airline - with its airbrushed planes colored with parrots, daffodils, sunsets and lighthouses, and its leisure destinations - conjures up a free-spirited operation.

An independent panel of judges selected Wolf as the Commuter/Regional Airline News 2003 executive of the year for a propeller operation. "What Dan has done with Cape Air is remarkable," one of the independent judges noted.

"He is the unsung hero in the business," said another judge. "He harkens back to the traditional regional airlines."

Business schools have also taken notice. "He is clearly one of the most creative guys in the industry today," said Harlan Platt, an airline consultant and a marketing professor at Boston's Northeastern University. Platt's students in recent years used Cape Air for a management case study. "Not many firms switch assets each season, and none as dramatically," he noted.

"If you look at our 15-year history, we have always proactively pursued good growth opportunities," Wolf said. "We are not concerned about the distance from our main headquarters. Our concern is if it is a good opportunity that we don't want to pass up. Every two to four years, we have done something big - either a merger or entered a new market. We were looking at some interesting things in the 2000-2001 timeframe. Our one reaction to Sept. 11 was to wait and see what happened for a year or two before moving forward in a growth mode. We are now moving forward in that growth mode."

This summer, Cape Air will begin flying two Cessna 402s and two ATR-42s in Micronesia. Operating out of Guam, the carrier will fly to tourist attractions on Saipan and Rota, both islands in the nearby Northern Mariana Islands. The starting date has not been set.

Cape Air is setting up shop in Micronesia in partnership with Continental Airlines [CAL] and its subsidiary, Continental Micronesia. Wolf said Cape Air will establish new service to the smaller islands that Continental does not already serve.

"Our comfort level is very high," Wolf said. "Micronesia is very similar to what we are doing in the Caribbean. The more we get to know the markets, then the more we feel compatible and able to serve them in ways that has worked in the other regions we have served."

Cape Air has been flying in the Caribbean - primarily Puerto Rico and the Virgin Islands - since 1998.

Continental has been a code-share partner since 2003. Cape Air flies routes in Florida and the Caribbean with Continental codes. It still flies as an independent in New England.

The Micronesian opportunity, as well as the expansion to ATR-42s, came about because of its relationship with Continental, Wolf said. "We sent the message out that we are a forward-looking company that wanted to pursue growth opportunities in an open and creative way. Having that posture was an open door for those who wanted to approach us."

Continental, which had been looking to build its business in Guam, started talking to Cape Air about a year ago. "It was a natural that made a lot of sense for both parties," Wolf added.

Unlike its other markets, Micronesia will be a year-round operation. "It will be 8,000 miles from Hyannis [Mass., Cape Air's corporate headquarters] and we won't move aircraft back and forth."

While Cape Air maintains year-round operations in all its markets, it shifts its fleet on a seasonal basis. "We have a lot of flexibility to move capacity around." During the winter, the airline has 15 planes in the Caribbean and 12 in Florida. But in the summer, the fleet in the Caribbean shrinks to six and Florida to four as the rest of the planes return to New England. Even in the dead of the New England winter, Cape Air still flies 17 planes to help residents of the "geographically challenged region" maintain contact when the waterways freeze.

The decision to fly a larger plane was made in conjunction with the decision to start the Micronesia service. Cape Air is leasing three ATR-42s from Continental. The aircraft may eventually replace the 402s.

"Clearly, one of the strengths of our airline is to have a fleet of aircraft that are virtually identical," Wolf said. "We are extremely aware of this and are wary of going to a different aircraft. We need to spread our wings and make a future for us in larger equipment. There is a bit of a learning curve and risk in stepping out of the box we have been in. We think it is the right time and opportunity to do so."

Wolf said that the carrier has stayed with the nine-passenger 402 for such a long time because it did not need a larger plane in its markets. When demand has been high, Cape Air simply flew more planes.

While the routes in Micronesia can support a larger plane, none of the existing markets can support an aircraft of the class of the ATR-42 on a consistent basis. "We have some markets in the winter or summer that would support bigger airplanes," Wolf said, "but there are no markets that we currently serve that would support bigger airplanes year- round.

"We could possibly replace the 402s with the ATRs, but not necessarily in the same markets. We have to make sure we match the capacity of the airplane with the demand in the various markets. One of the challenges in this industry is that match. We will be very judicious about this."

Cape Air decided to go with the ATR because of Continental's successful history with the plane. "As we get to know the airplane better, we are happy with the operational characteristics and its ability to do the job for us out there."

"The ATR is a very good airplane for many of the places they are in," said Michael Boyd, a Denver-based airline consultant.

Cape Air "is the last of the real 402 operators," Boyd said. "They are in markets that they can still do that. People will still get on a 402, but eventually even these people don't want to sit in a shell seat for hours."

Because Cape Air will be flying the larger plane, it now must be certified as a Part 121 carrier. The carrier's application is still in the process. "It has been challenging," Wolf said. "It is an ongoing learning experience, even though we have 130,000 flight operations a year. We have found the FAA [Federal Aviation Administration] extremely good to work with. We see them as partners in our growth and success."

Opening a new market so far from Hyannis is not worrisome to Wolf. "We have strong regional administrators in each region. Our management philosophy is to empower the front line as much as possible. They have a lot of autonomy when it comes to customer service and operational details."

Wolf will place an experienced Cape Air person in Guam "because it is important to replicate our corporate culture and the values that have been so successful. We will be hiring from the region and we will have enough of our own presence there to make sure it is done consistent with our other regions."

Is Guam the last new market for Cape Air? "In three to five years, we would like to operate seven to 10 ATR-class aircraft, or perhaps some 19-passenger planes. With our current expansion, we are growing our infrastructure so that we can grow to the seven- to 10-plane operation.

"As the role and mission for the regional jet becomes clear and more defined, there will be a better defined niche for the turboprop. We want to be in a position to pursue those opportunities as they become clearer.

"Our growth over the last 15 years has been organic - internally funded. We have no debt - all our planes are paid for - and we don't have any operating debt. We have a seasonal line of credit that we have not touched. Financially, we have played it very conservatively. I don't intend to sacrifice that position by growing too fast."

As Cape Air assesses new opportunities, Wolf said the carrier hopes to break even in two to three years. "We are not a carrier that looks to make it in six months. We think you have to demonstrate a commitment to a community that you are serving. It takes time to develop that relationship."

Last year, the privately held Cape Air had earnings of $40 million, Wolf said. Cape Air's employees via an employee stock ownership program are the largest shareholder holding 30 percent of the company's equity. The carrier has been profitable for last 12 years. The airline carried more than 530,000 passengers as it logged 50,000 flight hours.

Customer service is part of the company's corporate culture, as memorialized in its mantra - "Make our customers happy and have a good time doing it."

"This industry is about people," Wolf said. "It is about service to employees, commitment to employees, service to customers and commitment to customers. The work has to be enjoyable, engaging. There has to be a passion - a common identified unifying goal. It has to be presented to the customer in a way that they feel both embraced, welcomed and taken care of."

"The difference between us and some of the companies where employees have a passion [is] ... I shy away from ... a cult of personality in management. I don't want it to be a reflection of my personality. I want it to be a liberating experience where each of them is free to express themselves in their work. Instead of the outside world being a reflection of Dan Wolf, it is a reflection of 500 personalities, 500 worldviews and philosophies and a lot of diversity. We have a common theme to values - respect, integrity, treating people right, teamwork, kindness and respect."

>>Contact: Dan Wolf, Cape Air, (508) 790-3122; Harlan Platt, Northeastern University, (617) 373-4740; Michael Boyd, The Boyd Group, (303) 674-2000.<<