Icelandair has announced it will buy its fellow Icelandic airline and low-cost rival, WOW air, in a move that will likely drastically reshape the transatlantic airfare market. Icelandair expects to close the deal over the coming weeks, and says it will run the two airlines as separate brands.
WOW air made a name for itself by offering low fares to Europe through Reykjavik, including $99 one-way fares to the Icelandic capital. The airline offers quirky but no-frills services built on a la carte pricing: Base fares include a personal item and little else, and the airline is known for delivering a customer experience that could best be described as “uneven.”
Despite all that, the airline surged onto the scene thanks to its too-good-to-be-true fares. Along with Norwegian Airlines, WOW ushered in a wave of affordable transatlantic travel, and the airline quickly expanded to destinations across the U.S.
What Went Wrong?
In an email to WOW employees (English translation below), founder and CEO Skúli Mogensen explained that while the early days of WOW were heady and hopeful, the outlook has turned less rosy of late:
“There have been many victories but also some major challenges,” Mogensen wrote. “This year in particular, has been extremely challenging compared to the incredible growth and success that we enjoyed during prior years.
Unfortunately, external conditions have continued to deteriorate and the outlook for many airlines has gotten extremely rough. WOW air is no exception and despite us working around the clock trying to improve the outlook we have now been faced with some extremely tough decisions.”
He adds that there will be no changes to daily operations or the current roster of destinations, at least for now, before addressing what is likely the elephant in the room:
“I realize this will come as a shock to many of you and obviously it was not part of the original game plan. However, given the circumstances I think this is the best solution for our team, our passengers, the continuity of WOW air as a low-cost carrier and not least for the travel industry in Iceland.”
But this begs the question: Can WOW continue as a low-cost carrier without an airline to truly compete against?
What This Means for Budget Airfares
With WOW in the fold, Icelandair now operates 80 percent of the air traffic into Iceland. The two airlines competed vigorously on routes, and WOW was also aggressive on pricing to the rest of Europe, going head-to-head with other mainline carriers to popular destinations.
Going forward, a lot will depend on whether or not Icelandair continues operating WOW as an a la carte alternative to traditional service. Icelandair certainly could do that, perhaps while improving the service quality a bit and shedding some underperforming routes. This would allow Icelandair to offer two distinct products for different types of travelers.
But Icelandair isn’t doing too well itself. The airline has cut profit projections amidst a cooling tourism market in Iceland, so the decision to purchase WOW could simply be as straightforward as eliminating a competitor.
Either way, the acquisition likely means the demise of those $99 fares. However, travelers can hope Icelandair chooses to operate WOW as a revamped low-cost airline, thus preserving some of the low-price pressure WOW created.