Icelandair To Buy Low-Cost Rival WOW Air

Over the last month, I’ve written about the challenges encountered by ‘stand-alone’ airlines, such as UK’s Flybe, and collapsed-Cobalt Air of Cyprus. These type of airlines are the more vulnerable players of the European airline compared with nearly all competitors, given these carriers are not an airline subsidiary of a major airline group.

Without the backing of a parent group owner such as IAG (who own British Airways, Vueling, Level, among others), smaller airlines encounter harsh headwinds when attempting to battle against its consolidated airline competitors, of whom have the backing of a larger, and more established group owner.

In Iceland, WOW Air is (soon to be ‘was’) the example of a ‘stand-alone’ airline carrier, describing itself as a ‘happy, low-fare, long-haul airline.’ The young airline connects Europe and North America via Iceland.

WOW Air Route Network

Wow and Icelandair both use Reykjavik as a connecting airport hub — and both have faced financial difficulties recently.

icelandair routemap
Icelandair Route Network

WOW Air recently announced that it will be terminating several US destinations. Meanwhile, Icelandair has held discussions with creditors and has sold its hotel operations division ‘Icelandair Hotels’ and ‘Hotel Edda’.

In addition to this, earlier this year, Icelandair highlighted the fierce competition it faces with WOW Air, and how WOW’s expansion was directly affecting Icelandair operations, given the low-cost carrier rival has a capacity share of about 33.2% from Reykjavik…just six years after its launching.

Over the last few weeks, rumours regarding the increasing fragility of WOW Air started to surface. While the airline could have been purchased by other airline groups eyeing WOW Air (such as IAG, or Lufthansa Group), this morning WOW Air’s number one competitor, Icelandair announced it will acquire the rival airline for around $18 million — in an all-share deal aimed at ‘creating a stronger competitor’ in the international airline market.

WOW Air’s CEO, said:

“There will be no changes in our daily operations and we will continue to service our passengers and destinations as before with the mission to continue to offer the lowest fares to and from Iceland and across the Atlantic,” the e-mail reads in part. “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. I encourage you to look at this as an opportunity to continue our journey now as a part of a much stronger group that can enable us to succeed long term.”

Final Thought

This is very surprising news, as Iceland’s two largest competitor airlines attempt to consolidate. An Icelandair Group shareholder meeting will be held to make a final decision on the purchase, in around three weeks time.

Consolidation often works very well for airlines…but for consumers (passengers), we may notice WOW Air’s low-fares begin to rise. The airline has built a reputation based upon the ‘low-cost long haul’ strategy, and Icelandair has already made clear that it is not looking to change that. However, if the acquisition is approved, we can expect to see Icelandair ‘tidy up’ Wow Air, by means of route network, product, and domestic strategy.

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