Blow for Iceland: Wow Air ceases operations after failing to find financial backer

ICELAND. Low-cost airline Wow Air has gone out of business after failing to find a financial backer following weeks of negotiations. All 29 of the airline’s flights scheduled for 28 March were grounded, forcing 2,700 passengers to make alternative plans to reach their destinations.

The Icelandic carrier, which operated services between Iceland, Europe, Asia, and North America, has become the latest victim of erratic fuel prices and a general over-capacity in the airline industry which has triggered a fare price war.

Wow Air was founded by entrepreneur Skúli Mogensen and carried 3.5 million passengers last year.

Wow, which was headquartered in Reykjavik and had its home hub at Keflavik International Airport, had been in significant debt and seeking a backer amid an increasingly cut-throat trading environment in the airline industry.

The business had previously said it was in the final stages of raising new equity from a group of investors, and as recently as this week had been telling passengers flights were merely postponed and a rescue plan was in place.

Wow joins a significant list of other airlines to have gone bust in the past 12 months, including the UK’s Flybmi as well as Germania, Monarch Airlines, Primera, Air Berlin and Cobalt.

The global airline industry is undergoing a process of rationalisation which many industry sources expect to continue during 2019.

A statement on Wow’s website said: “Wow Air has ceased operation. All Wow Air flights have been cancelled. Passengers are advised to check available flights with other airlines.”

Danny Brooks, CEO and Founder of VHR Global Recruitment, which specialises in the aviation sector, told The Moodie Davitt Report: “We’ve seen other low-cost airlines go bust in recent years because of their aggressive cost-cutting business model. When everyone is in a race to the bottom, smaller brands often can’t generate the amount of business to compete with larger rivals.

“Rising fuel costs mean that some airlines just can’t make a profit unless every seat on every flight is filled, and this is an inherently unsustainable business model. Airlines should try to carve out a niche, and focus on quality instead of the lowest costs at any cost approach.”

The impact on revenues at Keflavik Airport is also likely to be severe: Wow was the second largest airline user of Iceland’s gateway and a key contributor to airport income. As reported, airport company Isavia last week hosted the ACI Retail & Commercial Conference in Reykjavik. (The event theme was ‘Adapt or Die’ – a reference to external influences that have threatened traditional sectors of the aviation and travel retail markets.)

Before the Wow Air collapse, Isavia had already projected a sharp fall in passenger traffic for 2019 due to a reduction in airline frequencies and seat capacity. In January it said that 8.9 million passengers are expected to pass through Keflavík Airport this year, compared to 9.8 million in 2018, or a decrease of 8.7%. The decline is likely to be even steeper with the carrier’s exit.

Isavia had already forecast a sharp fall in passenger traffic for 2019 before the Wow Air collapse (click to enlarge).

The closure has also prompted sharp job losses. A report in English language title Iceland Review today estimated 600-700 jobs lost in the local municipality, though final figures (taking in related industries and services) are unclear. To set it in context, the country has a population of less than 350,000.

According to Reuters, Central Bank Governor Már Gudmundsson said that the collapse was likely to have a negative impact on national GDP this year.

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