Analysts have cited mismanagement as one cause of the
closure on March 28 of discount Icelandic carrier Wow Air. But the company was
also hamstrung by a business model that is inherently difficult, a reality that
could bode badly for the remaining transatlantic, ultralow-cost carriers, most
notably financially troubled Norwegian.
"Low-cost long-haul is tough," said commercial
aviation analyst Seth Kaplan. "Just ask Primera, ask Norwegian, which is
losing money, and ask the dozens of other airlines that have tried it over the
While the closure of Wow was surely a shock to the many
travelers the carrier stranded at airports or left in search of a ticket for
upcoming travel, it was widely anticipated among industry insiders.
In the week leading up to the grounding, Frontier owner
Indigo Partners had walked away from a proposed $75 million capital infusion
into the struggling airline, and 11th-hour talks with Icelandair had quickly
broken down. Further, financial problems had been acute at the carrier since at
least the fall.
Wow posted a pretax loss of $42 million during the first
nine months of 2018, and its deteriorating finances had caused it to reduce its
fleet from 24 to 11 aircraft in recent months and to eliminate all widebody
Wow had also shrunk its network, including U.S. routes. As
of Thursday's grounding, the carrier flew to just four U.S. cities, down from
the 13 markets it served last summer.
Ralph Hollister, a travel and tourism analyst at the
London-based data and analytics company GlobalData, said that the privately
held airline was overly ambitious.
"It's a case of mismanagement," he asserted. "They
expanded too quickly."
Wow launched U.S. service in 2015 with routes from its
Reykjavik, Iceland, base to Boston and Baltimore. The quick ramp-up to 13
routes by last summer provoked a response in several markets by Icelandic
competitor Icelandair as well as by legacy U.S. airlines in some markets.
Both Hollister and Kaplan said that another of Wow's
mistakes was the 2016 incorporation of widebody Airbus A330s into its fleet to
complement its narrowbody Airbus planes. The move added complexity to
operations and increased the carrier's debt load.
Beyond the specific decisions of Wow management, the airline
fell victim to a difficult business model.
Wow's model of flying passengers between Europe and North
America on one-stop itineraries put it at a disadvantage relative to
transatlantic competitors, the analysts said. In addition, though ultralow-cost
carriers have flourished economically on short-haul routes, for which
efficiencies related to aircraft utilization and quick turn times can be major
cost savers, they've yet to prove themselves in long-haul markets, where fuel
cost is a proportionally larger portion of expenses.
For the remaining low-cost, transatlantic carriers, Wow's
departure could be helpful. Last July, Wow offered 85 departing U.S.
frequencies per week, some 2% of total transatlantic frequencies. Norwegian
Air, by comparison, flew 103 such frequencies per week last July, and Lufthansa
ultralow-cost subsidiary Eurowings flew 19, Kaplan said. He
was citing data from the analytics company Diio Mi.
Primera, which ceased operations in October, flew 21
transatlantic flights per week.
Both Norwegian and Eurowings have been money losers.
Lufthansa reported in its year-end earnings release that Eurowings had a 5.5%
margin of loss last year. Meanwhile, Norwegian lost approximately $450 million.
The carrier is now shifting its focus from growth to cost savings.
"They are struggling at a time when the industry is
doing very well," Kaplan said of Norwegian. "Any type of shock -- a
fuel spike, a demand crisis -- could bring them down. They are not an airline
that has a lot of breathing room."