WOW Air May Have Just Found A New Lifeline

This situation sure is changing quickly. At the beginning of the month it looked like Icelandair would acquire WOW Air, though yesterday it was announced that the deal fell through.

This obviously left WOW Air in a challenging position. The airline has been canceling routes left and right, they’re reportedly running out of cash, and the winter is ahead of us, which is the toughest season for airlines operating transatlantic flights.

Now it looks like WOW Air may have just found a new investor, and this time it’s not another airline.

Indigo Partners to invest in WOW Air

There has been an agreement in principle that Indigo Partners will invest in WOW Air, though the terms of the transaction weren’t disclosed.

Following completion of due diligence, the parties will work to close as soon as possible. Under this deal, WOW Air’s CEO and primary shareholder, Skuli Mogensen, would remain a principal investor.

WOW Air’s CEO had the following to say:

“The demand for low-cost air service continues to expand rapidly worldwide, and with Indigo as a partner, we hope to take full advantage of this highly attractive market segment. I am excited to work with Indigo and I am convinced it is the best long-term move for our people and passengers.”

Meanwhile the Managing Partner for Indigo Partners had the following to say:

“Skuli and WOW’s management and employees have done a remarkable job in creating a well-regarded, successful ULCC brand. We have a strategic vision for the airline, and look forward to working with its employees and agents to deliver that vision.”

For those of you not familiar with Indigo Partners, it’s a US private equity firm that specializes in aviation. They have a controlling stake in Frontier Airlines, though also have investments in airlines like Volaris and Wizz Air, and in the past have invested in Spirit Airlines and Tiger Airways.

So they know what they’re doing, and have been very successful at making airlines profitable. I imagine they’re not paying a whole lot to take over WOW Air, though they’ll either be providing significant capital or will be tasked with raising that, given the winter ahead.

What could Indigo Partners be planning for WOW Air?

I’m very curious to see what Indigo Partners’ vision for WOW Air is.

The way I see it, WOW Air got too ambitious too quickly. I feel like if their core business model has any chance of working, WOW Air should focus on markets where they can fly narrowbody aircraft efficiently.

This means not flying to any markets that require A330s (which just offer too much capacity for this type of business model), and not flying to any destinations where their planes have to be on the ground for 20+ hours.

It’s pretty easy to see where the airline got off track, and that just months ago their plan was to expand to over a dozen destinations in Asia.

So my guess is that Indigo Partners will be focused on two things:

  • Returning WOW Air to their core business model of operating narrowbody planes across the Atlantic
  • Building partnerships with other airlines (perhaps even Frontier?) to offer connectivity on both sides of the Atlantic

Whether or not they can make the airline profitable long term is a different question, though. At a minimum, I think they could make WOW Air a more attractive acquisition target for another airline, rather than the fire sale that the airline was about to have.

What do you think WOW Air needs to do to build a sustainable business model?

Comments

  1. Interesting idea about partnering with Frontier. Though I don’t believe their business model would jive well in a partnership with Southwest (who doesn’t nickel and dime and is prolly more of a LCC rather than ULCC), curious your thoughts on why SW hasn’t partnered with European or Asian airlines with a limited US-connection network like this?

  2. Ha! I thought it was IndiGo (the indian LCC) at first until you mentioned that they are an american private equity firm.

  3. Interesting, frontier just partnered with Volaris in a codeshare agreement. I had no idea they shared ownership. Maybe Frontier will have an Atlantic partner soon as well.

  4. @BENHOLZ I thought the same thing! hahaha I was thinking “hmm…that’s..original. let’s see where they go with that.”

  5. The Frontier partnership makes a ton of sense. It’s a way to feed traffic from the smaller markets that can’t support a flight to Iceland, as well as fill some seats on Frontier flights. I would imagine the market is pretty similar for Frontier and Wow- infrequent travelers jumping on a deal, students, retirees with flexible schedules, families trying to cut per ticket prices down, etc.

  6. The core problem with trans-Atlantic LCCs is that significantly more Americans are interested in a cheap flight to Europe than Europeans interested in a cheap flight to America, especially the fourth-tier cities that Wow began operating in, simply because it got a nice local subsidy.

    Why would a European from Milan or Paris suffer on a Wow Air-via-Iceland flight to the United States for $450 — fees and bags included — when they can literally fly on all manner of full-service carriers to almost anywhere in the world — cheaper and more interesting destinations like Tokyo, Havana, Rio de Janeiro, CapeTown, and Thailand — for the same price?!

    Wow needs to focus on a few cosmopolitan cities — New York, Miami, Chicago, DC, Vancouver, Toronto, and Montreal — and then develop a network of connecting flights with Spirit or Frontier.

  7. For a moment, I was surprised to see that a reputed low cost airline would invest in the shambles that is Wow. Then I read the article and it all made sense..sort of.

  8. Hmmm. Very Interesting. I can actually see how it could possibly work. Frontier would need to change a few things, but I can see it beneficial to both

  9. WOW…The problem I see for WOW has been obtaining low-cost ground support at US airports. But “synergistic savings” by using all of Frontier’s ground support and even gates…HUGE.

    I believe the onward connection possibilities are only secondary…primary concern has to be further cutting costs within the US. Think about it this way: Why would anyone connect TWICE (both in KEF and in the US) just to go to Europe? All of the ‘Big 3’ US carriers already compete on SINGLE connection tickets to major cities in Europe from practically anywhere in the US.

  10. The timing of this announcement makes me think that Indigo offered a better deal than Icelandair and WOW decided to drop it despite what the initial statement said (though it was rather vague).

    Given how successful WIzz Air has been doing then i honestly think this is great news for WOW.

  11. I always find it confusing that Indigo Partners has nothing to do with Indigo in India.

    Would one of you just pick a different name and solve this problem!!!!!!!

  12. @Manny – well uh, aside from the fact that they have shared ownership with Wow, Frontier also has 100 destinations and have service accessible to almost 90% of the USA sooo… it’s kinda obvious buddy

  13. Either Ryanair, Wizzair, easyJet or Norwegian Shuttle Airlines, Tui fly (IAG Group) and Lufthansa group eurowings may acquire some part of shares to support airline operating.

    Getting rid of all wide body planes, A321neoLR single aisle efficient newest planes take advantage of transatlantic routines and use fuel refilling stop airport bases to extend routine’s long distance range. For example,
    Reykjavík— via Edmonton, Vancouver, Toronto — L.A., San Francisco, Seattle, Anchorage.

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