Wow Air, a budget airline launched in 2012, targeted younger travel audiences with ultra-cheap airfare with minimal additions. The company struggled for the last two years, hemorrhaging nearly $45 million between July 2017 and June 2018. Now, their bankruptcy threatens to ripple through Iceland’s entire economy.
Wow Air Bankruptcy Could Cripple Iceland’s GDP, Tank Krona
According to a local government task force, Wow Air’s bankruptcy could impact Iceland’s GDP by 3 percent and weaken the Króna by as much as 13 percent. Other forecasts claim as much as a 10 percent drop in exports and a 6 percent increase in inflation.
These forecasts came before the bankruptcy was finalized, so it remains to be seen how the failed airline actually impacts the economy. Their assets will likely be repossessed and sold to competing airlines, allowing them to take over Wow Air’s market share. The question at this stage is whether any competitors will swoop in to offer low-cost, long-haul international flights.
Icelandair Financing Deal Collapsed
Equally as shocking is how close Wow Air came to avoiding this fiasco.
Wow Air was reportedly negotiating deals with Indigo Partners and Icelandair, but both deals ultimately fell through. Bondholders agreed to convert from debt to equity following the deal losses. Since then, at least one Wow Air jet has been repossessed, and two were sold off and leased back to gain some short-term funding.
Icelandair stands poised to gain the market share lost by Wow Air, now that the company has ceased operations. Wow Air was expecting to raise their prices some, which would have resulted in higher profitability for the company. They were not able to secure their desired funding—between $50-100 million—to overcome their challenges and competition.
Wow Air Bankruptcy a Portent for Budget Airline Market?
Wow Air was unique in their ability to offer super cheap long-haul flights between the US and EU member states. A bare-bones flight could be found for around $100 internationally and roughly $60 between EU states. This sort of travel price reduction enabled younger, less-wealthy generations the opportunity to travel within the EU and US, despite limited financial stability.
Wow Air did, however, retain the amenities of other airlines, using standard planes, but limiting cargo weight and luxury features behind a paywall. In this model, ideally, luxury features would be snapped up, and lower cost seats would be auto-filled, resulting in a lighter flight and awesome opportunities for those willing to take them.
In the end, Wow Air didn’t wow anyone. They have folded under themselves, leaving a stark warning to the rest of the budget airline industry.
Last modified: September 23, 2020 12:37 PM