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News: WOW collapses

Icelandic budget carrier WOW air has collapsed, following the repossession of part of its already reduced fleet and the cancellation of all flights. Passengers have been stranded at airports in Europe, Iceland and North America, and employees have lost their jobs.

A message on the airline's website says: "Wow Air has ceased operation. All Wow Air flights have been cancelled. Passengers are advised to check available flights with other airlines."

WOW air Wow was founded in November 2011 by Skuli Mogensen and started operations the following year, offering flights to Paris, London, Copenhagen and Berlin using sub-chartered Airbus A320 aircraft. It expanded rapidly and gained its own air operators certificate two years later. The fleet increased with more A320s and A321s entering service while the network was expanded to include cities in North America.

In 2016 when passenger numbers doubled to reach 1,600,000 and the airline served 30 destinations. The firm also added three widebodied A330 aircraft to the fleet, enabling it to serve the US West Coast and the employee count increased to more than 700. The following year it added another five Airbus aircraft, staff increased to more than 1,000 and 2.8m customers were carried.

By 2018 losses were mounting the fleet was downsized to 11 aircraft following a refocus on core routes and ultra low-cost operations. That wasn't enough though, and following abortive merger talks with Icelandair, US-based Indigo Partners came to a tentative agreement to take over WOW air. This too came to nothing in early 2019, and following last-ditch but short-lived talks with Icelandair again, WOW air found itself unable to maintain a schedule due to aircraft being taken back by their owners.

As the end came, Mogensen wrote in a letter to employees in which he said: "I will never forgive myself for not acting sooner. Wow was clearly an incredible airline and we were on the path to do amazing things again."

Editorial opinion: There has hardly been a time when airline collapses have been out of the news over the last two years. Names such as Monarch Airlines, airBerlin, Cobalt Air, Primera Airlines, Skywork, Small Planet Airlines, Germania and flyBMI have all disappeared since 2017. Other carriers such as Norwegian Air Shuttle are known to be struggling to reach profitability, while even larger firms like Ryanair have announced reduced earnings.

There are two primary reasons for the ongoing problems in the industry. Firstly, there are too many seats chasing too few passengers, which has resulted in airlines having to offer fares that are unsustainable. Offering eye-catching prices is one thing, but carrying customers at a loss is not sustainable. However, travellers have become accustomed to seeing and adept at discovering the lowest fares.

Secondly, the price of oil and the dollar - the currency in which it is purchased - has been volatile over the last year or two. Managing costs is critical to any airline's success, and even though fuel hedging (fixing the future oil purchase price) is widely pursued price movements still make budgeting difficult in an industry that sells tickets up to a year in advance.

WOW air itself also over-expanded in a relatively short period. It depended on connecting traffic across its hub at Keflavik in Iceland while its competitors were offering direct services. There has been a long history of airlines without a substantial home market failing (although admittedly some have made a success of it) because ultimately it is the home market that sustains the business in the face of downturns and aggressive competition.

WOW air was also a pioneer in the long-haul low-fare market, and there is still considerable debate about the viability of the business strategy. Passengers are usually willing to forego a meal, drinks, a bag in the hold and even a seat assignment on a one-hour hop in Europe. But more customers want these extras when they are sitting in a seat for up to five or even seven hours. While base-fares in the budget sector are attractive, purchasing the add-ons soon hikes the total price to levels broadly equivalent to the legacy airlines. An added complication of long-haul low-cost is fleet utilisation, which is much harder to maintain when schedules and connections dictate aircraft have to sit at distant airports for several hours.

Text © The Aviation Oracle

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