Nature Abhors A Vacuum: In The Wake Of WOW

The Reykjavík Grapevine and most of Iceland have been watching the struggles of WOW Air since last year as it scrambled to find investors. But time ran out in late March and the plucky purple airline has gone out of business. The brainchild of Icelandic tech entrepreneur Skúli Mogensen, WOW is the second Icelandic airline to file for bankruptcy in less than a year—Primera Air collapsed in October 2018.

Over one thousand people lost their jobs when WOW tanked, amounting to the single largest layoff in Iceland’s history. Arion Bank estimates the bankruptcy could cause more than a 15% reduction in visitors to Iceland in the short term, but that there will be no long-term impact.

Human Cost

The weeks leading up to WOW’s collapse were characterised by chaos, with investors repeatedly showing interest and then backing out and talks of a partial buy-out by Icelandair coming and going.

On March 27th, a deal looked to be within reach and workers went to sleep cautiously optimistic. But with mounting debts, including to the company from which WOW leased their aircraft, March 28th marked the end.

WOW Air’s 1,100 employees and contractors met the same fate as their former coworkers who were let go in December of last year. The ground services company Airport Associates gave notice to their employees as well; a layoff that could be avoided if other airlines can quickly fill up the void left by WOW’s departure. Workers at the duty free and other shops at the airport also lost their jobs.

WOW passengers were left stranded, given only a few hours’ notice of their flights’ cancellations. Some passengers claim to have not been contacted at all by WOW, and either read about the airline’s closure in the news or upon turning up to check-in for their flight. The shock, frustration, and anger were visible when the Grapevine interviewed travellers at Keflavík International Airport on March 29.

Economic Ripples

According to state broadcaster RÚV, the demise of WOW is disproportionately affecting companies outside the capital region. They have seen many cancellations from foreign tour providers for the summer holidays. The tourism industry in those regions is seasonal and operators are smaller. They cannot easily withstand a significant disruption to their high season.

In the capital, the Sónar Reykjavík music festival was cancelled because many artists and attendees were booked on WOW. Many international fans are cancelling their trips to Iceland as a result; there have been many Airbnb cancellations.

The failure of WOW poured a bucket of cold water on labour talks. Unions were preparing for a general strike but accepted the latest compromise proposed by the state mediator. The VR union agreed to pay its laid-off members’ wages because payday was only a few days away and the wait period for unemployment benefits is going to be long due to volume.

Flashbacks

A detailed autopsy of the airline is still a ways off, but a general plotline has emerged since the airline surrendered its operating license.

WOW Air was founded in 2011. It rose from the ashes of IcelandExpress a year after Eyjafjallajökull halted flights across Europe and put Iceland on the map for many. Skúli Mogensen used his tech money to buy up the assets of the failed enterprise and the rebranded carrier took off quickly.

At its height, WOW Air carried more than a third of passengers travelling to or through Iceland. Its sudden absence is a huge, disruptive hole in the industry, but an irresistible opportunity for competitors. Within days, Icelandair announced it was leasing new planes and increasing service. It intends to expand even more once its new Boeing 737 Max 8 planes are cleared to fly. Dutch airline Transavia applied for some of WOW’s slots and will start operating in July after jumping regulatory hoops. Hungary-based Wizz Air is also going to increase service, including daily flights to London. Coincidentally, Wizz’s owners,Indigo Partners, twice negotiated to buy a stake in WOW Air.

From the Ashes

Many observers have pointed out the similarities to the collapse of the island’s banking sector in 2008. Like the banks that preceded it, WOW was led by executives with little to no knowledge or experience in the industry—only instead of fisherman running banks, it was nerds directing planes. WOW and the banks grew far too fast with high levels of debt. WOW was profitable in its first few years when it emulated the proven strategies of airlines such as RyanAir. In recent years, however, the company pivoted to long-haul routes and tiered seat classes. The overexpansion included failed routes to India and Israel. Hatari will have to make a transfer on route to Eurovision in Tel Aviv.

Skúli invested 4 billion ISK of his fortune in the venture; he may now lose everything, including his house. The company has started bankruptcy proceedings and its assets will be liquidated. Authorities hope to keep the property in Iceland.

Despite the epic — and still ongoing— failure, Skúli has made moves to launch a new airline, meeting with investors, applying for an airline operating licence and even coming up with a tentative name for the new endeavour: NewCo. WOW Air lost 22 million ISK last year, so NewCo may be a hard sell despite Skúli’s acknowledgment of poor strategy and financing.