WOW: Icelandair Is Acquiring WOW Air

While we’ve seen a massive amount of transatlantic growth lately, a lot have questioned the sustainability of it. For example:

Well, it looks like we now have the next major part of this puzzle.

Icelandair is acquiring WOW Air

It has just been announced that Icelandair intends to purchase WOW Air, as Icelandair has entered into a share purchasing agreement to purchase all WOW Air shares. This is subject to approval of the Icelandic competition authorities. With this deal, WOW Air will receive a total of 5.4% of Icelandair Group’s shares after the transition.

As part of this deal, the companies will continue to operate under separate brands, and they say that the acquisition “creates opportunity for both companies to become even better prepared to provide international carriers with strong competition in the international airline market.”

Here’s what Icelandair’s CEO has to say about the deal:

“WOW air has in recent years built a strong brand and enjoyed great success in the company‘s markets to and from Iceland and across the Atlantic. There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals. The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.”

Meanwhile here’s what WOW Air’s CEO has to say about the deal:

“I am very proud of the success and development that we at WOW Air have enjoyed in the past few years and I am thankful for the response we have received since our very first flight. We have created a strong team that has reached remarkable success and has been a pioneer in low cost flights across the North-Atlantic. A new chapter now starts where WOW air gets an opportunity to grow and prosper with a strong backer like Icelandair Group that will strengthen the foundations of the company and strengthen its international competitiveness even further.”

My take on Icelandair taking over WOW Air

I guess there are a few ways to view this. First of all, I don’t think this news is surprising at all. For Icelandair and WOW Air it has sort of seemed like a zero sum game, given that the airlines are offering very similar value propositions, and have been trying to undercut one another. Keflavik Airport has limited room for expansion, the airlines aren’t making money, and they’re limited in terms of opportunities.

On one hand, this is bad news for consumers, since the two airlines won’t have to compete as fiercely with one another anymore. On the other hand, I really don’t think WOW Air’s business model was sustainable, so eventually I imagine the airline was going to be acquired or just go out of business, which wouldn’t have been good for consumers either.

It is interesting that they plan on maintaining separate brands for both airlines. While that’s the case, my guess is that:

  • The airlines will adjust their route networks so that there’s less overlap
  • The airlines will harmonize policies so that the experience in both airlines is very similar, except for subtle branding differences
  • The airlines will codeshare, so it could be that a passenger flies WOW Air from Baltimore to Keflavik, and then Icelandair from Keflavik to Frankfurt, for example

So this is a fascinating update, and I’m very curious to see if this deal gets approval, and what that looks like.

Bottom line

Icelandair and WOW Air working together seemed inevitable, given that they were very much working against one another, and neither airline was succeeding. For a while it seemed like we were in a period of unlimited growth, where airlines simply couldn’t fail.

We now seem to be at the start of a new cycle, and a lot is happening at once. I think it’s going to be a very interesting upcoming year in the airline industry, as I imagine this is only the beginning.

What do you make of Icelandair acquiring WOW Air?

Comments

  1. If the competition authorities actually approve this, they should hide their heads in shame. This would create an entity that controls over 90% of the Icelandic market.

  2. @ Sean, how is that different from what the market was before WOW? Better to have 1 airline with 90% share than have both airlines fold, metaphorically taking KEF off the connection map, leaving just some O/D for tourism traffic.

  3. I strongly disagree with point 2 “The airlines will harmonize policies so that the experience in both airlines is very similar, except for subtle branding differences”.

    Icelandair only has 1 thing that distinguished it from WOW, which is being a service airline. For quite some time, Icelandair was trying to go more in the WOWair direction with unbundling service and making more money on ancilliaries. I think if they harmonize, it will be a loss for Icelandair which brands itself as a premium airline as opposed to the flashy pink of WOW. I feel that the product would remain more or less the same. Of course route harmonization would be inevitable.

  4. As per a cited quote on Wikipedia:

    “Together, Icelandair and WOW air have a share of around 3.8% of the transatlantic market”

  5. @Sean M – Overall all market share to/from Iceland (2018) between the 2 airlines is about 79%, not over 90% as you claim. Given the powerful stakeholders in Icelandair and the importance to Iceland’s economy, this is going to happen one way or the other now.

  6. I literally just flew WOW last week for the first time on a $220 round-trip from EWR to KEF. I had a strong suspicion these roughly $200 airfares just couldn’t last, so I kept pushing the wife to take a trip before fares jumped or WOW went out of business. Anyway, I loved the flight, the flight attendants, the plane, even the Icelandic beer at $6.60 a can was a relative bargain. I’ll definitely fly a no frills airline like them again if the price is right.

  7. I see potential here. Iceland can offer efficient one stop connections between European and American cities that are simply unviable for non-stop legacy Operators.

    I somehow think that in the rush to disrupt the transatlantic market with low fares they have missed out on this opportunity. For instance, Rejavik could be an obvious choice for a connection from Edinburgh to Pittsburg which would ordinarily entail a two stop connection.

    New aircrafts such as the A321lr and even the A220-300 (Ex c-series) have the range to serve secondary cities in the Eastern sea-board with optimum capacity. I believe Iceland Air can seriously look at pursuing a “Moxy” type of business model in the transatlantic market and this could be a true game changer. I believe there is such potential for such demand to be less price elastic making it viable for Iceland Air to pursue a dual brand strategy.

    Simply put- Iceland Air can pursue a modern hybrid model like JetBlue and WestJet targeted towards business and premium leisure markets differentiated by efficiency (fast connections) and quality. I believe the trans-Atlantic market is mature enough to absorb a quality centric hybrid offer.

    Wow as a true ULCC can drive tourism with Low fares and also be a price driven disruptor in some transatlantic market where there is potential to stimulate price sensitive demand with sustainable margins.

    Ultimately not all markets are suitable for Wow’s ULCC model and having a merged entity allows both the Brand’s to optimise their networks without each trying to attain critical mass. I definitely see Iceland Air taking over some of Wow’s longer routes such as New Delhi and West Coast US markets where operating a ULCC model simply can’t deliver the level of cost advantage required to stimulate demand.

    It is however critical that the two brands stay true to their distinct propositions and are deployed strategically into different markets to avoid canibilization. I also think Iceland Air needs to modernise their fleet and take a leaf out of JetBlue’s book particularly for their premium offering to justify its positioning in a dual brand structure.They should carefully consider investing into A321lr, A220-300s and reconfigure Wow’s A330s for longer routes with premium potential.

    Wow in turn should become an exclusively narrow body operator offering Low cost flights to key cities in North America and Europe that are within a 5 hour flying distance from KEF.

  8. Is it possible the market for cramped seats and poor service coupled with a stop in Iceland might be waning?

    Just sayin…..

  9. I flew Icelandair in 2011, pre-WOW, and more recently in 2017, post-WOW. The service changes were astounding. I avoided WOW because of the low cost airline thing only to find that Icelandair seemed to degrade itself to the same level of service. I don’t know what this takeover would mean for service, but I hope to see pre-WOW Icelandair come back

  10. Why on earth would they maintain both brands but make the service on both the same? That makes no sense whatsoever.

    The only logical reason for keeping both is to develop Wow as a LCC while positioning Iceland air as the premium carrier.

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