There’s big, and perhaps troubling, news in the world of budget airlines, as it was announced Monday that Icelandair is taking over WOW Air.
The two Icelandic airlines will continue operating under separate brands, so don’t expect WOW Air to disappear entirely. So if you’re booked on WOW Air in the coming months, there’s no reason to worry at this point.
However, it appears the financial woes plaguing the ultra-low-cost carrier market finally caught up with WOW. The takeover is subject to shareholder approval.
“There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals,” Icelandair CEO Bogi Nils Bogason said.
Along with Norwegian Air, WOW Air is one of the largest and best-known transatlantic airlines offering dirt-cheap fares. After some aggressive expansion, these budget airlines have shown signs of struggling amid rising fuel prices.
Norwegian’s CEO Bjorn Kjos recently warned there’s “no chance” airlines could remain in business without hiking fare prices. Just a few weeks ago, WOW Air scrapped its new routes to Cincinnati (CIN), Cleveland (CLE) and St. Louis (STL). And of course, Primera Air shut its doors overnight.
These are tough times in the budget airline business. Rising fuel prices have been punishing for airlines whose low fares mean their profit margins are slim. There have been whispers of takeovers and mergers of WOW Air and others for months.
Both WOW Air and Icelandair operate out of Reykjavik-Keflavik (KEF), so, on one hand, this makes sense. By teaming up, they can stop eating each other’s lunch and make a turn towards profitability.
But competition from scrappy upstarts is what has driven down airfare across the board. So regardless of whether WOW Air still exists in name, there’s about to be less competition.
It also remains to be seen whether Icelandair slows WOW’s expansion plans or cuts back on its routes. WOW flies to Iceland from 10 North American cities. And this spring it announced plans to begin service to Delhi (DEL) starting in December, with fares starting at $199 each way.
This isn’t the first bit of bad news for budget airlines, and we’re fairly certain it won’t be the last. While WOW Air isn’t disappearing, the competition that has driven down fares is taking a hit.