Skuli Mogensen, the former CEO of now-defunct WOW Air, is angry. He believes the collapse of his airline was avoidable.
In a letter to (now ex-) employees, Mogensen said:
I will never be able to forgive myself for not taking action sooner.
Speaking to the Financial Times, he pinned the problem squarely on WOW Air’s widebody acquisition in late 2016.
We wanted to use Iceland as a global hub connecting three continents…
To do that, WOW ordered A330s. But oil prices crept up in 2018, rising nearly to $100/barrel. That presented a far different model than $50/barrel oil in 2016.
In retrospect the wide-body decision unfortunately turned out to be fatal.
Even though WOW Air canceled future deliveries and returned the A330s already delivered, it was already too late.
We still had too much debt on our balance sheet and, given a very challenging airline environment at the moment, didn’t have the time to secure the funding needed.
How much debt? $150MN.
Five Reasons For Collapse, Not One
The problem was not one strategic blunder of buying A330s instead of sticking to narrowbody aircraft. Instead, there was a perfect storm of:
- A330 blunder
- Under-capitalization
- Over-expansion
- High fuel costs
- Growing labor costs
To pin blame on the decision to acquire A330s and argue that alone caused a snowball of damage does not adequately factor in all the other elements that combined to force WOW Air to cease operations.
CONCLUSION
I was planning on flying WOW Air this summer and am very happy I did not book my ticket. For those who do find themselves stranded, many airlines are offering “rescue” fares to get you home or to your destination. But sadly the real loser will be Iceland, which has been propped up by unsustainably low fares for the last two years now. Look for a big tourist drop now that “free stopovers” enroute to Europe are no longer available via WOW.
Iceland hasn’t just been propped up as a low-fare stopover destination. It also had the prior investment boom.
It will recover
This is all interesting but it seems like to me (and I’m no expert) that all airlines run into challenges with labor cost, fuel cost, and enough capital. With those factors being typical in this industry it leaves the plane choice and expansion (route choice) issues and that is on management. It’s too bad they didn’t go with used cheaper planes, invested in new interiors and run to better solid routes to establish a foothold first. I wanted to fly Wow but never got the chance.
“Blue Horseshoe loves Wow Air” 🙂
To be honest, $150mm of debt is not a lot relative to their estimated $480mm in revenue — I appreciate their margins are thin but there a lot more mistakes than just that.
You don’t think the real losers here are the hundreds/thousands (?) of employees who are left jobless thru no fault of their own? I’d love to see some statistics of the actual number of tourists that Iceland received by way of Wow’s stop-over program (which Iceland air still offers). Hard to see this having a meaningful impact on the country (tho maybe there are facts to support your conclusion).
It wasn’ t just conjecture, but I do not mean to underscore the tremendous burden/pain that this untimely demise brings upon the 900 employees.
DEN to Iceland on Icelandair has been holding around $700 roundtrip for non-summer travel the past couple years (I’m constantly toying with the idea of going). Wonder how much it will jump, if at all? WOW wasn’t serving the Denver route anyways…
Probably good for Iceland. Airbnb was eating Reykjavik alive. Tourism was out of control. Now Iceland will have a chance to reflect and consider whether it wants its economy to be dominated by stopover tourism.