Icelandair Group purchased all the WOW Air shares in a transaction worth about kr$2.17 billion (~US$17 million) in a share exchange. The airline will also assume WOW Air’s debts.
Icelandair and WOW Air Competition
Icelandair traced its roots back to 1937 and is the national airline of Iceland while WOW Air was the upstart that commenced operations starting 2011. Both have been aggressively competing over transatlantic and European traffic over the past 7 years with a low and ultra low cost model. While Icelandair has the bigger network of both airlines, WOW Air had introduced many overlapping destinations (nine North American airports alone – San Francisco (SFO), Toronto (YYZ), Chicago (ORD), Cleveland (CLE), New York (JFK), Boston (BOS), Orlando (MCO), Dallas-Fort Worth (DFW), and Washington DC (IAD)) by Summer 2018. The latter also scheduled to start a new service to Vancouver (YVR) in 2019. While both airlines combined are responsible for up to 4% of transatlantic traffic, the competition has been leading to lower fares and passenger yields.
Trouble Brewing For WOW Air
Owing to new route introductions, revenue continued to advance in double digit percentages during the fiscal year 2017-18. The heightened competition and higher cost base contributed the airline losing US$45 million before interest and taxes from July 2017 to June 2018. The airline failed to secure additional cash flow in a three-year bond issuance and finding a new investor to finance its transitions to a publicly traded company back in Summer 2018. As such, the airline entered into takeover talks with its chief rival Icelandair along with the Icelandic Competition Authority.
“WOW Air has built up a strong brand over the years, and accomplished a lot under that brand, to and from Iceland over the Atlantic Ocean,” acting director of Icelandair Group Bogi Nils Bogason said in a statement. “It’s a great opportunity for earnings, but the airline will continue to operate under its own initiative and under its own brand.”
Kúli Mogensen, the director and founder of WOW Air, said he was “very proud of our accomplishments and what we have built in recent years,” saying that the buyout represents a “new chapter” for the airline to grow and expand its reach.
What Is In The Future?
Icelandair, in a press release, stated that both airlines will continue to operate separate as different brands. Currently, the airline operates a fleet of 35 Boeing 737 (3), 757 (28) and 767 (4) aircrafts with an order book of another 14 aircrafts comprised of 737 (13) and 787 (1).
WOW Air currently operates an all Airbus fleet of 20 aircrafts comprising of 3 A320s, 14 A321s and 3 A330s with another newer 4 A330s to be delivered this year. The scheduled delivery may be delayed as Icelandair evaluate operations.
It is often challenging for airlines with a mixed fleet to merge into one operation as crew and pilots are not certified to operate the different aircraft types. For the time being, it is a good idea for Icelandair to continue flying both brands separately tackling the competitive market conditions while strategizing on next steps. In the meantime, their schedules should be coordinated to create a barrier of entry for other airlines. Additionally, the entire route network should be reviewed and overlapping poor-yield routes should be eliminated to improve overall finances of the new company. Experience The Skies has already seen WOW Air reduced routes to San Francisco (SFO), Cleveland (CLE) and Cincinnati (CVG) starting October 27, 2018.
About Larry Leung and Experience The Skies
Larry Leung is the Director of Research and Strategy at Experience The Skies. He is a certified avgeek, a public speaker and a dessert and design enthusiast. Contact him through LinkedIn, Twitter or email.
Experience The Skies is a consulting company based in Toronto, Canada that specializes in the travel industry with focus on the assessment, competitive analysis and development of loyalty programs, technologies, marketing, ancillary revenue solutions. Find out how Experience The Skies can assist in evaluating the entire customer journey from booking to the travel experience by contacting [email protected] or follow other posts on Twitter, Facebook, Flipboard, and Instagram.