A few weeks ago, we announced a possible takeover of WOW Air by its rival Icelandair. Except that since then, things have evolved… and it could well be that WOW Air follows the sad fate of other Ultra Low Cost companies …. unless there is a last minute change of heart.
Icelandair will not buy WOW Air
The news came down today: the two companies will not merge.
Icelandair Group hf. issued a stock exchange release last Monday, November 26th, stating that the company estimated that it would be unlikely that all of the conditions in the share purchase agreement would be fulfilled by the shareholders’ meeting on November 30th.
That situation remains unchanged.
Therefore, it is unlikely that the Board of Directors of Icelandair Group can recommend to the shareholders that they agree to the purchase agreement. Furthermore, the Board does not intend to submit to the shareholders’ meeting a proposal to postpone decision-making on the purchase agreement.
The CEO of Icelandair made the following statement:
“The planned acquisition of Icelandair Group of Wow air will not go through. (…) All our best wishes go out to the owners and staff of the Wow air. “
While the CEO of WOW Air declared:
“It was clear at the outset that it was an ambitious task to complete all the conditions of the share purchase agreement in this short period. We wish the management and staff of Icelandair Group all the best.”
WOW Air on the verge of bankruptcy
After Primera Air, it could be WOW Air’s turn to go bankrupt …. without a last minute turnaround.
In fact, the situation is dramatic for WOW Air:
- WOW Air has just cut almost all its services in the United States:
- Total cancellation of flights to Cincinnati, Cleveland and St. Louis… only months after launch
- 3 fewer flights per week to Pittsburgh starting January 11
- 3 fewer flights per week to Orlando between January and March 2019
- Only one flight per week to Los Angeles in January 2019 and no service at all between February and April 2019
- Disappearance of service to San Francisco
- WOW Air has just returned to its lender (Avalon) 4 aircraft including 2 wide-body A330-300s… which leaves only one long-haul A330-300 in the fleet!
- WOW Air also returns other medium-haul aircraft to its lenders or subleases to other
to other companies such as Aruba Airlines.
other aircraft. - WOW Air has still not taken delivery of new aircraft (A330-900neo) which were planned to serve new destinations…. including New Delhi! There is a good chance that it will never receive them… as was the case with Primera Air and its A321s.
In the space of a few days, WOW Air has reduced its fleet size by 20% and its seat capacity by 25%! !
There are rumors about the new service to India, New Delhi… which is not expected to last long at all these cuts (even though ticket sales have started!).
And even more disturbing… is the statement from the CEO of WOW Air to his employees who were afraid for their next paycheck:
“Due to the continuous negative events all our lessors, creditors and authorities have been monitoring the situation even closer and demanding stricter payment terms then before further putting pressure on our cash flow.
“As a result, our Q4 results are materially worse than originally anticipated.”
The financial situation is therefore quite…dramatic for WOW Air.
Especially since the winter period is traditionally the worst for an Ultra Low Cost airline on transatlantic flights in terms of load factor.
And what about this letter from the CEO of WOW Air sent to shareholders:
11/30: Indigo Partners takes an interest in WOW Air
Indigo Partners and WOW Air have signed a preliminary agreement for Indigo Partners to invest in the company.
Indigo Partners is not an airline, but an American investment fund, specialized in aeronautics. This fund has control of companies such as Frontier Airlines in the United States and have investments in Volaris and Wizz Air. In the past, this fund has invested in Spirit Airlines and Tiger Airways.
This fund is thus specialized in (ultra) low-cost companies… like WOW Air… which could be the lifeline that WOW Air badly needed.
Refocusing on medium-haul flights
It is likely that Indigo Partners will encourage WOW Air to review its business model. The Icelandic ultra-low-cost airline wanted to grow too fast, launching numerous long-haul destinations with wide-body A330 aircraft.
WOW Air should take advantage of its strategic position halfway between the European and American continents to focus exclusively on what has made it successful: medium-haul flights.
And that’s what the company seems to be about to do by returning long-haul aircraft and considering cancelling far-flung destinations like New Delhi.
Open partnerships with other companies
The entry of Indigo Partners in the capital of WOW Air could perhaps allow to consider partnerships with other companies, notably Frontier in the United States, which would greatly benefit the expansion of WOW Air.
Are you planning to travel with WOW Air?
What to do if you have a flight scheduled with WOW Air?
For the time being (a few weeks), you should be fine.
However, if your travel plans are more than 2 months away, we advise you not to pre-pay for other arrangements such as Airbnb rentals, hotels, car rentals…
If WOW Air doesn’t get you there, most of those reservations will be lost if you can’t find another flight to get there.
What to do if you are considering purchasing a flight on WOW Air?
Don’t make the same mistake many have made with Primera Air: pay with your Canadian credit card.
You will be protected by your credit card issuer in case of airline default.
Bottom Line
I do not move
my opinion on Ultra Low Cost airlines, already mentioned during the Primera Air bankruptcy
.
This situation is untenable for transatlantic airlines: certainly, the arrival of WOW Air, Primera Air, Level, Norwegian has forced the market to readjust… but at what price? The cut of many services (luggage, choice of seats, food, comfort on board)… without necessarily a price reduction!
And unfortunately, it is very difficult for a company like WOW Air – which does not have the deep pockets of a traditional airline – to grow so quickly in a long-haul market…. hoping to create a market while waiting for more efficient aircraft to arrive in the fleet. Especially without a network of airline partners.
So I don’t think there is a profitable market for long-haul transatlantic Ultra Low Cost flights.
On the other hand, it is possible for more traditional airlines like Air Transat to do well with new aircraft. That’s what it will do with its new single-aisle A321 aircraft that will serve European destinations starting next summer, which we can’t wait to try.
And of course, this pessimistic message does not apply to other well-established low-cost airlines such as Easyjet, Ryanair in Europe, Air Asia in Asia or even Spirit in the United States.
Come to discuss that topic in our Facebook Group!
