This week many were shocked when Icelandic low-cost airline WOW Air ceased all operations. What happened? How did it get to this point? What is next for passengers travelling to Iceland? We’ve put together the story of WOW Air, from conception to collapse and beyond. Read on to find out more.
WOW wasn’t the only way to get to Iceland. Here is a valuable article on the many options to get you here.
Born from the ashes of another airline
WOW Air was founded by Skúli Mogensen. Skúli made a large part of his fortune from founding a tech company called OZ, which he then sold to Finnish telecom company Nokia in 2008. The sale went through before the 2008 financial crisis, and Skúli’s finances remained safe during this time.
In 2011 Iceland only had two airlines. The oldest, Icelandair was established in 1937 and is still in operation today. The alternative was a smaller, low-cost airline called Iceland Express. Iceland Express had been operating flights since 2002 and began experiencing financial trouble in 2011.
At the same time, Skúli had founded WOW Air through his company Titan Partners.
On November 21, 2011, Iceland Express ceased all operations immediately. Almost a year later WOW acquired Iceland Express’ network and operations, and in October 2012, WOW launched its inaugural flight. An airline was born.
Expansion and Criticism
WOW Air was established on the cusp of the tourism boom in Iceland. Within their first year of operation, they increased services to Gatwick and Copenhagen while establishing regular flights to Salzburg and Warsaw.
By 2013 the company’s growth looked promising with over 400,000 passengers using their services. By December 2014 WOW Air had flown their millionth passenger.
In 2016 WOW expanded its operations to service flights to the US. The first cities established were Los Angeles and San Francisco. They later began servicing Canada and other US cities.
By the end of 2016, the low-cost airline had an annual passenger capacity of over 1.6 million, double that of 2015.
The public image of WOW was very similar to that of Virgin Airlines. A fresh face in air travel armed with passionate staff who believed in the company. They had an incredibly active social media presence with marketing campaigns that were quite different from their older competition Icelandair.
During the height of their expansion, WOW began adding other destinations to their flight schedule. By May 2018 they announced direct flights between Iceland and Delhi, in India, would go into effect after the purchase of an Airbus A330-Neo aeroplane.
They had started to receive criticism from industry experts for their fast expansion. In a 2018 poll of customer satisfaction, they had scored the worst in a list of 72 airlines when it comes to service, being on time and customer satisfaction.
Undeterred by this, the airline seemed positive about the future.
In August 2018 WOW announced losses for the year 2017, and a leaked presentation for investors showed the company was in more financial trouble than the public expected.
The leak showed that the value of the company had decreased dramatically. The owner’s equity had fallen from USD 40 million to USD 14 million in six months.
They had begun offloading aircraft and cancelling flight routes towards the end of 2018. This sparked fears of a drop in tourism in Iceland. Also, as a result of speculation for the future of the airline, the Icelandic krona experienced several drops.
On November 5, 2018, it was announced that Icelandair would step in to purchase WOW. Less than a month later the deal had fallen through. The following day a foreign firm that specialises in low-cost airlines called ‘Indigo Partners’ agreed to buy the company.
To secure the purchase by Indigo Partners WOW was presented with some terms and conditions. They had to reduce their fleet from 20 aircraft to 11 and cut the number of destinations they were flying to.
Following through on these stipulations meant backing out of a 12-year deal leasing four A330s from an Irish company, resulting in a large fine. This also reduced their expected passenger capacity from 3.1 million to 2.1 million.
Skúli Mogensen assured shareholders and the public that all terms would be met by the end of February 2019.
By March, Indigo Partners had backed out of their proposed buyout of WOW, leaving the future of the company uncertain. WOW then re-established talks with Icelandair in the hopes that an agreement could be made.
See Also: Ultimate Guide to Flights to Iceland
This time the negotiations were taking place with the involvement of the Icelandic government who do not have a responsibility to save private companies but were naturally concerned about the effects of WOW’s collapse on the economy.
Within days of talks, Icelandair officially announced that there was no possibility of a deal.
A deal was struck
With no possibility of a buyout, Skúli went into negotiations with the creditors WOW was owing money to. He successfully convinced all creditors, except air travel management company Isavia, to turn the debt WOW had with them into equity in the company.
This move turned debts equaling USD 130 million into a 49 per cent stake in WOW Air.
The next step for WOW was to secure a further USD 43 million in share capital to keep the company afloat. Icelandic airlines must be able to show they are financially able to sustain running costs to legally operate, so this working capital was a necessity to secure WOW’s future.
The transfer of debt into capital sparked new talks with Indigo Partners. By the close of business on Tuesday, March 26, things looked to be on the up for the future of WOW Air.
Almost overnight, any hopes that the airline could be saved were struck down by a statement on the official website of WOW Air.
WOW had ceased all operations, and all flights had been cancelled indefinitely. The cessation was the result of a failure to reach an agreement with potential investors.
If you have been inconvenienced by the WOW Collapse, check out this article on solutions for stranded WOW customers
Skúli Mogensen said in a statement, “We have run out of time and have unfortunately not been able to secure the funding of the company. I will never be able to forgive myself for not taking action sooner.”
The final WOW Air flight was WW121 from Reykjavík to Detroit.
What is next?
With all planes grounded and over 1,100 people out of a job, there is a lot of uncertainty over what is next.
Flight attendants, pilots and other staff found themselves stranded abroad without a clear plan on how to get home to Iceland. Icelandair stepped in and offered to fly WOW employees home free of charge.
In regards to passengers, Icelandair, Norwegian Air, EasyJet and Wizz Air (who are owned by Indigo Partners) began offering rescue flights to those affected.
Indigo Partners have already started purchasing spots once held by WOW Air at Gatwick Airport. With WOW ceasing operations, this could open the marketplace for other airlines to step in and provide even more services than was previously available.
In a nation that has already survived a major financial crisis, resilience in the face of adversity is apparent. The attitude of many Icelanders currently is to just take this situation one day at a time.
For a lot of Icelanders, this will be a difficult time, but they have already survived the horrific blow of the 2008 crisis, and this in comparison is a much smaller hindrance.
Check out the Discounts in Iceland for WOW Air passengers here
Something else that has come out of this situation is a display of typical Icelandic hospitality. Many businesses in Iceland have been offering discounted or free services to those passengers stranded here due to the WOW situation.
In a nation with a tiny population, a situation like this collapse has an effect on almost everyone. Most Icelandic residents know someone who worked for WOW Air or has been inconvenienced by the situation. The population as a whole feel the pain collectively and will undoubtedly do whatever it takes to come out of this on top.