Struggling Icelandic carrier WOW Air have agreed a sale with Air Canada to offload four A321neo aircraft. Owned on finance lease since 2014, the four Airbus aircraft will move to Air Canada in January 2019, as part of WOW Air’s ongoing restructuring plans.
Used on finance lease since 2014, WOW’s sale of the A321s to Air Canada will liquidise around $12m for WOW. Air Canada already operates 15 A321s as part of their narrowbody fleet, so these new acquisitions will fit in nicely and allow increased capacity on their routes.
The move comes as part of a massive overhaul of the way WOW Air operates. Following 18 months of losses, the airline is trimming back routes and fleet in a bid to rein in their spiralling costs. Indigo Partners are currently carrying out due diligence ahead of a potential investment in the carrier, which could be the saving grace that stops WOW from going bankrupt.
Slimming down their fleet
WOW Air have had a turbulent year, with financial problems leading to a massive shakeup in the way the airline operates. Despite only being in business since 2012, the carrier has enjoyed rapid growth, reaching a total of 20 aircraft at its peak.
However, following $45m losses between summer 2017 and 2018, Simple Flying speculated that they could be in serious trouble, a notion that was confirmed when they began dropping routes and returning aircraft, as well as seeking investment from new partners.
Despite very recently securing a $75m investment from Indigo Partners, the airline was clearly in need of some serious changes. This has emerged as an abandoning of low cost long haul flights, and a refocusing on linking Iceland to the world with small aircraft and shorter routes.
“…it breaks my heart to downsize the company. However, in order to ensure our future and preserve WOW air in the long run, we, unfortunately, must take these drastic measures“ – Skuli Mogensen CEO and founder of WOW Air.
WOW Air have already returned four aircraft to leasing companies, sending back two A320 and two A330 aircraft in November. Selling these four A321s to Air Canada leaves just one A330 planned to be offloaded, to leave the airline with a fleet of just 11 aircraft. They had planned to purchase four new A330s to serve their long haul routes, but this will now not go ahead.
The airline have also trimmed back their routes, dropping service to New Delhi just weeks after it was launched, as well as ceasing US services in a bid to reduce their operating costs. In total, 111 permanent employees have been dismissed from their positions, as well as 250 temporary workers.
Is cut price transatlantic travel simply a bad model?
As an ultra-low cost transatlantic airline, WOW Air’s closest competition were Norwegian and Primera Air. We’ve already watched the demise of Primera, and are now hearing how Norwegian could be just days away from a major financial crisis.
Similarly, new LCC offerings such as IAG’s LEVEL, Joon from Air France and Eurowings from Lufthansa put additional pressure on these cheap pond hoppers. Despite the backing of robust legacy carriers, not all of these new airlines are seen as a success, with Joon potentially being closed by Air France.
Reasons behind these troubles include the rising price of fuel, growth in competition and a general increase in overall operating costs. Certainly, the entire airline industry is feeling the pinch of overheads going up, but perhaps the low-cost transatlantic model is just a poor choice in the first place?
Whereas low-cost short haul is consistently one of the most profitable airline business models, low cost long haul has a somewhat chequered record. Remember Laker Airways, PEOPLEXpress and Air Berlin? All adopted this model, and all failed to turn a profit, eventually failing completely as carriers.
Flying transatlantic is only ever going to work if you have the aircraft, personnel and service to make it work, and that means investment. Norwegian, for example, still had to purchase new 787 Dreamliners for transatlantic services (and had to replace one with an A380 following engine concerns), the same as any of the full service carriers would, but for a smaller, slower return.
Tim Robinson, editor of Aerospace, the magazine of the UK’s Royal Aeronautical Society, pointed out the difficulties in extending a short haul model into the long haul market. Whereas short haul carriers typically make their profits through rapid turnaround and flying as many legs as possible, long haul just doesn’t allow them to do that. Speaking in an interview earlier this year, he said:
“Low-cost long haul is a difficult nut to crack… Crews need rest, there is more luggage and turnarounds take longer. So, you need a highly efficient, modern aircraft to reduce fuel burn to a minimum.”
The future of low cost long haul is looking bleaker by the day, and with the bulk of the winter still to get through, it remains to be seen who will come out in a healthy position. For those looking to book their 2019 summer vacation, sticking will legacy or full service carriers for long haul could be a wise choice, or at least ensuring you’ve got some solid travel insurance behind you.