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The WOW factor

It’s been tried before, but WOW Air’s plan to offer cheap transatlantic tickets via Reykjavik could shake up the market and open new opportunities for tourism. Martin Rivers speaks to the man with the plan, chief executive Skúli Mogensen
 

Iceland’s WOW Air began flying between Europe and North America in March, staking its claim on a market that has confounded no-frills operators for decades.

 

Laker Airways is the name that typically crops up in discussions about the mythical low-cost, longhaul business model. The airline operated out of London Gatwick until its demise in 1982. However, it was another Icelandic carrier, Loftleiðir, that was first to open up affordable transatlantic flying to the masses, doing so decades earlier – albeit with the annoyance of a stopover in Reykjavik.

 

Loftleiðir was dubbed the ‘Hippie Express’ throughout the 1960s, proving popular with American students who were visiting Europe on a shoestring budget. One of those early travellers, former US First Lady Hillary Clinton, fondly recalled back in 2011 how the airline had boasted to being “the slowest, but the lowest”. Later however, it merged with Flugfélag Íslands to become the country’s flag-carrier, Icelandair.

 

While Loftleiðir lives on in a different, rather plusher form, Laker Airways and the many ventures that followed ultimately failed to turn a profit in the challenging low-cost, longhaul marketplace.

 

As a consequence, transatlantic flying is still dominated by full-service operators whose inflight products include checked baggage allowances and complimentary refreshments. These perks come at a cost, meaning that bargain-basement airfares are no more attainable today than they were in the last century. Norwegian Air Shuttle is the only scheduled no-frills airline currently braving the transatlantic market, deploying fuel-efficient Boeing 787 Dreamliners to keep its operating costs down.

 

But the ‘Hippie Express’ could yet make a comeback. At time of going to press, WOW Air were scheduled to begin serving Boston Logan International Airport from Reykjavik on 27 March, five times a week. It will add a four times weekly link to Baltimore/Washington International Thurgood Marshall Airport on 8 May, before adding a fifth frequency on 4 June. Through-tickets from several European points have been on sale since autumn 2014.

 

The US routes will be served by a pair of Airbus A321s, rotating between North American and European roundtrips in order to achieve utilisation rates of up to 20 hours per day. The onboard product will abide by WOW Air’s existing no-frills philosophy.

 

Entering the transatlantic market brings founder and chief executive, Skúli Mogensen, a step closer to rekindling Reykjavik’s reputation as a low-cost layover between the two continents. He established WOW Air as a virtual airline in November 2011, subsequently taking over low-cost rival Iceland Express in October 2012, and acquiring an Air Operator’s Certificate (AOC) in October 2013. While the airline has, to date, focused on European connectivity, crossing the Atlantic was always part of the business plan.

 

“By using Iceland as a hub we can get much better aircraft utilisation than the current point-to-point transatlantic airlines can offer,” he tells Low Cost & Regional Airline Business.

 

“We can do Iceland-North America-Iceland, then Iceland-Europe-Iceland within the same 24 hours, whereas if you operate a Dreamliner from London to North America you can basically only go back and forth once. The difference there is quite significant and reduces our cost bases accordingly.”

 

Being able to deploy single-aisle aircraft also gives WOW Air competitive advantages in the form of lower operating costs and faster turnaround times. Although its European rivals would love to emulate this strategy, few have the geographical good fortune to do so. Only Iceland and Ireland are close enough to the US East Coast to offer non-stop flights with commercially viable current-generation narrowbodies.

 

For Mogensen, who joined the airline industry after two decades investing in the telecoms and technology sectors, this presents an attractive business opportunity. He has already pumped a significant chunk of his personal wealth into WOW Air, and is determined to capitalise on Reykjavik’s geographical advantage by rapidly scaling up operations.

 

2014’s passenger count of 497,000 should grow to about 800,000 in 2015, he predicts, with the fleet reaching “five or six” aircraft once the A321s have arrived. The airline deployed three A320s and one A319 during summer 2014, later withdrawing the A319 over the winter season. By 2016, Mogensen expects to serve 1.5 million passengers with a 10-strong fleet.

 

Countering seasonal traffic

In part, low demand during winter justified the decision to launch WOW Air as a virtual carrier – initially contracting Avion Express and then Air Via to operate its flights – but Mogensen believes that sixth-freedom traffic should help “counter the seasonality of the Iceland tourism market”. That will in turn allow WOW Air to place more aircraft on its own registry.

 

“Because Iceland is such a seasonal market, being able to bring in aircraft under an ACMI [aircraft, crew, maintenance and insurance] structure to meet peak demand – and then do the year-round operation with our own fleet – seems to be a smart way to do it from a cost point of view,” he explains. “For summer 2014, there was only one aircraft on our registry. For this year it will be two. And by the end of 2016, 80% of our fleet will be on our own AOC.” >>


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