Icelandic budget airline WOW Air is ceasing flights
As is always the case when an airline goes bust, the collapse of WOW Air, an Icelandic low-cost carrier, has left a trail of financial devastation at home and abroad. More than 1,000 airline workers have lost their jobs. Tens of thousands of customers will face a battle to recover money spent on unused tickets. Those who are in the middle of their journeys are lost. With a population of less than 350,000 people, Iceland’s economy is not large enough or diversified enough to stop the failure. Last year the government warned that the fall of WOW would reduce GDP and cause the krona, the local currency, to fall.
In recent months Skuli Mogensen, WOW’s founder and sole shareholder, has been seen as the airline industry’s answer to Theresa May, the British prime minister, who is desperately trying to thrash out her Brexit deal. to be ratified before the country leaves the European Union. Mr Mogensen steered the loss-making company through crisis after crisis, trying to negotiate a bailout first with Icelandair, the flag carrier, then Indigo Partners, an American private equity firm, and then Icelandair again. His last roll of the dice was an attempt to get bondholders to convert their debt into shares. But none of the partnership talks yielded results and the airline ran out of runway when aircraft lessors withdrew their support.
That is a shame. WOW’s basic business model was strong: provide cheap and cheerful flights between Europe and America with a stopover in Reykjavik, the capital of Iceland in the mid-Atlantic. The use of cheaper short-haul aircraft gave WOW an edge over low-haul competitors such as Norwegian, which use more expensive aircraft designed for long haul routes. The strategy was started by Iceland pioneer Loftleidir in the 1960s. Will definitely try again in the future. But in the case of WOW it didn’t work because the company grew too fast and there wasn’t enough funding to get through the tight winter season.
Whatever the personal cost to Mr Mogensen – he told Icelandic media he invested “everything I have” in the airline – the WOW founder will be devastated with the media. Which?, a British-based consumer group, has criticized the company for continuing to sell tickets on its website even after its planes have landed. When the local media warned potential passengers about the dangerous scene, one of the company’s trade unions hit back with accusations of irresponsible journalism. That was absurd. Reporters have a duty to warn travelers that they may be throwing their money away. Policymakers should look at ways to protect such consumers during future airline bankruptcies, for example by increasing their priority in the distribution of assets when such a company is liquidated. With over a dozen airline failures in Europe since the start of 2018, WOW is likely to be the last airline to fail this year.