Wow Air, an Icelandic low-cost airline, cancelled all its flights on Thursday 28 March 2019. The airline, which was in great financial difficulty, was unable to cope with competition and the rise of oil prices.
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| Wow air goes bankrupt (credits:AFP) |
Wow air's debts
Wow Air was looking for investors. She naturally approached her compatriot Icelandair. As negotiations progressed, the two airlines finally announced that the takeover would not take place. "The Icelandair Group has decided that its possible participation in WOW Air's operations, announced on 20 March 2019, will not take place. As a result, the discussions between the parties have ended. The creditors of WOW air have agreed to convert the company's debt into shares for 49% of the company's capital, reports RÚV. WOW Air still had to find a buyer for the remaining 51% in order to avoid bankruptcy and to seek the ISK 5 billion ($41 million / €37 million) that it still needed to ensure the continuation of its activities.
Brief history of the company
Wow Air was founded in November 2011 by Skúli Mogensen, a 50-year-old Icelandic businessman who has invested in technology and telecommunications in his country. Wow air's idea is as follows: operate low-cost flights between Europe and North America via Iceland. Indeed, Iceland can be served in a few hours from New York or Paris. Thanks to its Reykjavík platform, Wow Air operated 11 aircraft on March 2, 2019, including 2 A320-200s and 8 A321-200s. The economic model is the low-cost one, with large price variations, many extra charges and a large number of rotations for aircraft with a significant subcontracting. Faced with financial difficulties, the airline made several decisions. The fleet was to be reduced with the abandonment of its Airbus A330s and the sale of four A321s to recover $12 million and 111 permanent employees were laid off, and the interim contracts were not renewed.
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| An Airbus A330 of Wow air |
A difficult sector
Air transport is known to be a competitive sector with low margins on air tickets compared to other sectors. Despite rapid growth, long-haul low-cost airlines are struggling to be profitable. In a few months, Norwegian found itself in difficulty with its €3.5 billion debt, Primera Air went bankrupt on 2 October 2018 and the French airline XL Airways suffered heavy losses.
The causes of this bankruptcy
Wow Air's main flaw seems to have been its size with only 11 aircraft used in recent months. Large airlines might have resisted such losses with more cash flow. Wow Air therefore faced strong competition with the arrival of Level (a subsidiary of IAG) and Norwegian, which entered the market after its creation in 2012. A higher oil price also widened the deficit. In July 2018, the barrel of oil flirted with $75 compared to less than $50 the previous year at that time.
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