It’s almost been a full year since Icelandic budget airline WOW Air suspended operations and declared bankruptcy. In doing so, thousands of passengers were left stranded – those without proper insurance losing their unused airfare. Since then we’ve seen the collapse of a few more carriers. But as we near the one-year anniversary, we thought it would be good to re-examine the factors that led to WOW Air’s bankruptcy.
The big reason
The surge in the cost of fuel was largely to blame for the airline’s collapse. With its low-cost model, profit margins were already rather thin. Any shift in airline expenses (fuel being one of the largest) would be hard-hitting.
In fact, for the month of February 2018, the cost of jet fuel was roughly sitting at US$1.85 per gallon. That, itself, is double what it was two years previous- a record low of $0.93. By May of 2018, the cost was well over $2 per gallon with a peak in September at $2.25.
The drastic rise was simply a storm that WOW Air could not weather. The airline did try – with WOW CEO Skúli Mogensen injecting €5.5 million of his own money into the airline. While this may have extended the airline’s life a little- it was nowhere near enough to overcome the surge in jet fuel prices.
Before the swift rise in oil prices, WOW Air had acquired three widebody Airbus A330-300s. Look at any successful low-cost airline today and you’ll see that they all have one characteristic in common: a single-aircraft-type-fleet. easyJet and Wizz Air use the Airbus A320 while Ryanair and Southwest both fly the Boeing 737.
Having these widebody aircraft may have enabled WOW Air to fly further afield to destinations like Delhi (India), but they also made aircraft operations a little more complicated.
It wasn’t just the fact that the aircraft were a different type. It was also the fact that they were big expenditures for the airline. These purchases took place shortly before the rise in oil prices.
A huge part of WOW Air’s revenue came from transatlantic passenger traffic. However, the transatlantic market is a fairly crowded place. Not only do you find loads of foreign legacy carriers serving the market, but there’s also fellow Icelandic airline Icelandair. Add to this Norwegian- a low-cost airline. Norwegian uses its more fuel-efficient Boeing 787s to cross the ocean – without having to deal with a stop at Keflavik airport.
The large amount of competition made it a constant uphill battle for WOW – which at times would end up costing the same price as its competitors after ancillary fees were collected for a larger carry-on or checked bag.
Furthermore, when fuel prices rose, WOW Air was stuck between the proverbial ‘rock and a hard place’. It was a budget airline with basic service at basic prices. A rise in fuel costs would compel most airlines to raise fares. However, if WOW did this, it would have risked moving itself out of the budget price range, competing more directly with full-service airlines.
Since WOW Air’s collapse, we have seen the demise of Jet Airways, Thomas Cook and Adria Airways. Each airline has different reasons for collapsing, with some overlap in various places.
2020 should be an even more interesting year for airline survivability as the coronavirus takes its toll on air travel around the world.
Did you get a chance to fly WOW Air while it was operating? Let us know what you thought of it by leaving a comment.