Too Much Growth, Too Quickly? Icelandair And WOW Air Both Record Losses

Filed Under: Icelandair, WOW Air

If you’re a regular reader here at OMAAT, you’ll have noticed that we write about the two biggest airlines in Iceland, Icelandair and WOW Air, often. That is because, especially in the last 12 months, both airlines have dramatically increased their route networks.

They have both taken advantage of the increase in tourism to Iceland, as well as connecting people between North America and Europe. Icelandair serves the following year-round destinations in North America alone with a fleet of 36 aircraft:

  • Baltimore
  • Boston
  • Chicago
  • Cleveland
  • Dallas/Fort Worth
  • Denver
  • Kansas City
  • Minneapolis
  • New York JFK
  • Newark
  • Orlando
  • Philadelphia
  • Portland
  • San Francisco
  • Seattle
  • Tampa
  • Toronto
  • Vancouver
  • Washington Dulles

Meanwhile WOW Air serves the following year-round destinations in North America, with a fleet of 20 aircraft (I thought they would have had a lot more than that?!):

  • Baltimore
  • Boston
  • Cincinnati
  • Cleveland
  • Dallas
  • Detroit
  • Los Angeles
  • Miami
  • Montreal
  • Newark
  • New York JFK
  • Pittsburgh
  • San Francisco
  • St. Louis
  • Toronto

For a country with a population of only ~330,000 people, the same population as Corpus Cristi, Texas, it’s very impressive for Iceland to have two fairly large airlines.

Both airlines have been adding new destinations like crazy, and I have always been interested to understand how sustainable this is. Icelandair has traditionally been more expensive, more traditional, and more like a legacy airline.

WOW Air, on the other hand, is ultra low cost, offering the cheapest fares ever seen across the Atlantic, but providing a very bare bones experience. I’ve flown Icelandair before and despite their appalling on time performance (the second worst in the industry only behind El Al), they were fine.

I have read multiple WOW trip reports and have no desire to fly them all the way to, say, Miami, regardless of how cheap their fares are. But they definitely serve a purpose — for anyone who may not have been able to afford to fly between Europe and North America, WOW’s insanely low fares may allow them to do so.

Iceland is an extremely expensive country to visit (and live in), and as such, I had always thought it would also be an expensive country to operate an airline in. So I’ve been curious as to how WOW Air especially was able to offer such cheap fares, with what is presumably a fairly high cost base.

Annual Results

Both Icelandic carriers have released financial results, and they’re not good news.

In 2017, for the year, Icelandair recorded revenues of $1.4 billion, and an annual profit of $37 million. However, since then, in the second quarter of 2018 alone, Icelandiar recorded a loss of $25 million. Should this loss continue for a full year, that would be an annual loss of around $100 million.

The much smaller WOW Air reported an increase in revenues of $486 million, a 58% increase in 2017. Despite the strong revenue, they suffered a net loss of $22 million for the year.

WOW Air’s chief noted that while the airline had good years in 2015 and 2016, 2017 was ‘not a good year.’

Both carriers blame the same factors on their financial performance:

  • Rising fuel prices
  • Decreasing interest in tourism to Iceland
  • A strong Icelandic Krona (meaning visiting Iceland is becoming even more expensive for foreign tourists and contributing to the second point above)

Icelandair is taking immediate steps to mitigate future losses. They have sold their hotel business, and will cut a domestic route to Akureyri as well as three international routes (to Greenland and the UK). They will also sell one of their newly delivered aircraft.

WOW Air has not announced any immediate plans to stem losses (there’s very little fat to cut in an ultra low cost business model anyway), but I note they have suspended their Tel Aviv route.

Bottom line

The insanely rapid growth of these two airlines for such a tiny country has always seemed unsustainable to me. Iceland remains a wonderful country to visit, however as much as I would love to visit every year, it is just far too expensive to do so, no matter how cheap the flights to get there are.

Of course both airlines can continue to develop their unique geographic location as a connecting hub but there is such fierce competition from very well regarded low cost carriers like Norwegian, which can offer direct flights on 787s for similarly low prices. While some might like stopping halfway across the Atlantic, others don’t, especially outside of summer, when it gets very cold.

What do you think is the future of Icelandic aviation?

  1. Icelandair’s online route map also shows Edmonton and Halifax in Canada as destinations. Maybe these are seasonal routes only and you are counting only full-year?

  2. @James

    Seattle and Tampa are on the same bullet point when you list the destinations served for Icelandair.

  3. “If you’re a regular reader here at OMAAT, you’ll have noticed that we write about the two biggest airlines in Iceland, Icelandair and WOW Air, regularly.“

    Two “regulars” in one sentence? But “regularly” could mean once every century; did you mean “frequently”?


  4. Not shocked at all by the financial results.

    You can only squeeze so much blood from a stone (i.e., WOW and IcelandAir passengers).

  5. Non-revved on Icelandair when I worked for an airline a few months back going KEF-BOS and there was maybe 30 people on the flight…

  6. Iceland is a beautiful country, my personal favorite. However, it’s not a country that most people will visit over and over again. You go once and that’s it. Both airlines benefit from the will of a lot of people to visit the country…either as a destination or a nice layover on their way to Europe. But that will fade out sooner or later…it’s probably happening already after 10 years of stupid growth.

  7. I did a lot of wow air/icelandair weekend trips to europe from Toronto last year but I got kind of bored of it eventually – I mean, how many times does one want to go to copenhagen, Amsterdam or Dublin even if the fare is $300 or $400? Plus now there is more competition with Primera to London and Paris which are nonstop.

    I’ve never been to iceland (as in, left the airport) and don’t plan to till the hype and currency dies down.

  8. This actually is not surprising giving the insane amount of growth in tourism in iceland in the past three years. It was never sustainable and eventually going to plateau out. I went to Iceland almost 3 years ago for my honeymoon and the cost of visiting iceland has almost doubled since I went (other than flights). You can only remain the in tourist destination for so long.

  9. I hope Icelandair comes through this and keeps up it’s seasonal route to YHZ. They are usually the fastest and cheapest way to get to many European destinations from my home province. My in-laws have taken them many times to get to AMS.

  10. You think Icelandair got caught up in trying to compete too much with the low cost WOW and WOW’s mo has dragged it down with it?

    Also, It’s pretty undesirable to visit Iceland right now. I was fortunate to visit back in 2011 before the tourism boom and it was so amazing. Went back earlier this year and it was beautiful but an annoyance to be there with SO MANY tourists.

  11. I know I should be worried about the growth of WOW air and Icelandair, but I really I am just shocked that you know about Corpus Christi, Texas! My little city is a little out of the way from most point redemption locations!

  12. This may be the most useless article you’ve written, as you clearly don’t understand, or don’t care to understand what a seasonal company looks like on paper. You would never, ever, extrapolate the results of one quarter for an airline like Icelandair or WOW, since the majority of tourism in Iceland comes in late summer, AKA Q3. Last year they made over $100MM USD in Q3 alone, so losing $25MM in Q2 isn’t really that big of a deal. Not great news, but not the end of the world. EBITDA is still projected to be over $100MM for the year.

  13. @ Ben – then why are they cutting routes and selling new aircraft if their results for one quarter don’t matter?
    Their business model is both tourism to Iceland, and connecting passengers. Passengers connect between Europe and North America year round, not just in Q3.

  14. i most certainly contributed to those losses last year – $288 EWR KEF on WoW and $245 JFK KEF on Icelandair, roundtrip, inc tax, and didn’t have to pay any bag fees.

  15. @James I didn’t say it didn’t matter, just that it wasn’t as big of a deal as you’re making it out to be. You would never look at Q2 as indicative of full-year performance, especially when their net income is so seasonal. Load factors on their European routes have increased YoY.

    The loss would never, ever continue for a full year with such a high level of tourism coming in Q3 and when about a third of travel is ending in Iceland. If they lose money in Q3 I will personally meet you anywhere in Europe, of your choosing, and buy you a pint.

  16. Maybe the word is out – nothing much to see in Iceland and it’s way overpriced. My brother flew Icelandair to Europe a few years back in J class and he said the hard product was like stepping back in time 20 years.

  17. Having flown both, I must say. WOW is killing themselves and Icelandair. Market not big enough to have 2 players. Their selling point of stopover lost its charm after the 2nd visit. It used to be about the same price to EU for nonstop and a stopover on FI, not the case anymore. WOW isn’t really cheaper if you add the frills. Unless you whole point is to go cheap’est’, who would want to go to Europe with just a tiny backpack. Once you add bags, then other airlines become more viable and bypass a KEF stopover. Like @Karim J said, he never even been outside of the airport, which is supposed to be the main selling point of these 2 carriers. Now @Karim J can find cheaper flights elsewhere.
    To make things worse LCCs 737MAX/321LR would easily bypass the need for KEF stopover. To model works, just not for 2 airlines. On the other hand, KEF used to be my favorite transit airport to EU. Before the Iceland boom few years ago, KEF was fast, simple, efficient. Nowadays its a bit of chaos. Same with HEL, another of my small/efficient EU transit.

  18. @ OMAAT editors… please ctrl+B every article James writes. The content is fine but the bolded words make absolutely no sense. The emphasis… I don’t understand it at all. That’s not how it works.
    @James… I don’t totally agree with @Ben (stop using EBITDA as a be all end all; it’s a valuation for companies who pump up numbers to sell themselves), but the premise isn’t wrong… there are periods of more and less connecting traffic to Europe and that overlaps with Iceland’s tourism season. They’re the same.
    Could be selling planes because that makes more money than flying. If AA could sell all its planes every year for more $ than it would make by flying them, it would become an airline reseller. We just don’t know what’s more profitable.

  19. I have to say I flew with Icelandair to Portland from the UK when they first launched and really enjoyed the experience. The ability to stopover in Iceland for no extra cost on the way back was also a big reason wjy I booked. The fares were very competitive and good value then especially to the west coast, but frequently now they are actually not very cheap to fly. You can often get more direct routings quite a lot cheaper – not tens of pounds but talking hundreds of pounds cheaper with full service legacy carriers such as Virgin Atlantic or Air Canada. I am not sure if this is because their cost base has gone up because of the rise in value of the krona – certainly it was quite reasonable when I was in Iceland in 2015, but they were still recovering from the financial crisis then.

    I think another problem they have is their hub at Keflavík is overstretched now, it was just about coping 3 years ago but now delays and complaints and lost baggage seem common. There use of those elderly 757’s can’t be helping either so new gen planes can’t come soon enough. I think with JetBlue considering launching over the Atlantic Icelandair is going to have to up their game – they actually have an opportunity to spoiler B6’s plans and launch as THE name in boutique transatlantic airline but that is going to require a significant change in their product strategy and a move away from on competing on price only.

    Lastly I agree WOW coming on the scene hasn’t helped although I don’t see them being around for long, they haven’t got much liquidity and their reputation is trashed due their terrible service and when you add everything on they are rarely cheaper than legacy carriers who offer superior experience that is all-inclusive. I think this piecemeal approach of add-ons just doesn’t work for long-haul at least not so stripped back.

  20. Guessing they are starting to run out of growing demand to visit Iceland for one thing. I picture a fairly prosperous American going to Italy 10 times in their life… But making one visit to Iceland and saying “ok, done that”.

  21. @eskimo: Totally agree, the market in this niche is not big enough for two carriers. I really can’t see WOW surviving though. Also the explosion of other non-Icelandic carriers flying to Keflavík isn’t helping either of them – I think we’re going to see a lot of these routes suspended and back to a skeleton seasonal service from a few key airlines.

  22. James, please leave the aviation business analysis to people who a) understand business (at a minimum) and b) ideally have some aviation expertise (Eg, CrankyFlier). Please stick to topics you can add value on – say points / Australia.

    The lack of analytical thinking emblematic in using x4 to annualized one quarter of a seasonal business is just overwhelming. The business models are challenged, but you make no meaningful contribution with your ill informed speculation.

    I am a longtime OMAAT reader who is about had it at this point – at the very least, James’s writing needs to be filtered out from valuable contributions. I hate to be so direct – but it’s just painful to read.

  23. fred, take some valium. James only wrote “should this loss continue” and since it was a quarterly loss, it would be 4 times that.

  24. fred, take some valium. James only wrote “should this loss continue” and since it was a quarterly loss, it would be 4 times that.

  25. @Barry greenfield – The (valid) point Fred was making is that there’s no reason to believe multiplying Q2 results by four is a remotely reasonable way to estimate or project full year results.

  26. Wow….

    A few things
    – I don’t think there there has been a massive amount of route cancellation?
    – how is the yield in thw buisness overall worldwide…. Is it so great?
    – Icelandair has not posted a loss for a whole year for a long time. Multiplying a single Q worth of loss by 4x makes no sense in thia buisness (unless if it was Q3… which would be bad)
    – i don’t think comparing wow which has sub 5% equity with Icelandair which owns most of their planes written off (MAX will change that but give other benefits) and $250M in cash on hand is fair.
    – Icelandair has NOT sold their hotels. they have expressed willingness to sell them as very few airlines own hotels these days …
    – last paragraph “why not just fly Norwegian….” well perhaps we should ask the Financial Times what they think about Norwegian….

  27. And who has been selling airplanes for anything other than the exercise of ordering new planes and then putting them on a lease or some sort of financing as they get delivered?

  28. I’m a huge fan of IcelandAir. Fastest way to get between N. America and European cities that can’t sustain a non-stop route. I know that earnings can be very seasonal. I’m hoping that the new 737s will help the airline open routes to more places such as Spain, Italy and destinations in Central/Eastern Europe.

    Áfram Ísland!

  29. I think this is really more a symptom of the introduction of competition to a tatl market that used to be dominated by a handful of JVs which regulators agreed could break antitrust law. While no company can operate at a loss indefinitely, WOW’s losses honestly don’t seem that extreme considering where they are in terms of growth. I would expect as they mature they’ll cut routes that don’t work out. I’d be more concerned if I owned shares in icelandair since their product is at least 20 years out of date. If BA offers a better product than you do, there’s something wrong with your airline!

  30. Well James I guess the economists out there read you! If only they would go after the utterly inane pseudo-economic analyses of our friend over at VFTW…

  31. At $0 a stopover in Reykjavik is too expensive. I cannot imagine the tourist traveling on the super cheap flights are the tourist best suited to the super expensive Reykjavik. Not a good fit.

  32. Richard – Though if you were in that bracket of tourist, you’d know you can make a cheap trip almost anywhere. I’ve been to some of the most expensive countries in the world (including Iceland) despite having a total budget that probably falls below what many of you will spend on food alone!

  33. Exactly. Totally agree with Callum on that. It all depends on what kind of tourist you are. I was in Iceland several times and I’m not rich by any means. I’ve seen people sleeping in cars there. People spend a week eating snacks instead of going to restaurants…and so on.

  34. I wonder what would be the possibility of Reykjavik getting a US pre-clearance facility, I’m sure it would make a lot of European’s look again at flying with an Icelandic carrier if they didn’t have to wait in an hours long immigration queue aftwe landing in the states.

  35. @James: I am surprised they actually haven’t done that as Ireland has had that both at Shannon and Dublin for many years and has made Aer Lingus very attractive for TATL flights for a lot of people. I think it’s not been mad very easy to do this in practice though by the US government as many European have talked about doing this but nothing ever comes of it. Space will also be an issue in Keflavík, as it’s really struggling with the volume of passengers as it is so not sure where they could even put it…

  36. @Fred and @Kari
    Give the guy a break, your analyst is a blogger. You probably know well how to separate fact from (poor) analysis and do better on your own. But that doesn’t mean @James didn’t provide some insights.
    Same as some relatives brag about a stock picks for the wrong reasons, i.e. Elon Musk tweet …. he must be right.

  37. Wow air claimed that the cancellation of TLV flights is temporary, and with arrival of new airplanes the line will resumed starting June 2019. The airline also claimed that the reason for closing the line is late arrival of Airbus a/c, and lot lack of demand.

    Need to mention that practicly anyone I know who flew Wow out of Tel Aviv continued to the US, and did not stay in Iceland.

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