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Wow………What Happened There

So, a local population of 340,000 somehow ended up with two local airlines operating some 8,700 seats a day to and from Keflavik, which required every local resident to travel every 39 days to fill those seats. Iceland may be dark at this time of year but it’s not quite that depressing!

Geography and opportunity can be two very dangerous ingredients for any airline but when they align, as they did for Wow, the eventual outcome was always likely to result in tears as we predicted in September. Too much capacity, rapid airline growth, parallel networks, reliance on 6thFreedom flows, increased direct competition, rising fuel cost, destination wear out and expensive transfer products. It’s little surprise that the graceful exit of Wow and merger with Icelandair has happened, but the key question is probably should Icelandair have bothered?

Politically it may soften the blow of losing a major base customer, and perhaps a few jobs will be saved, but the reality is that the classic Icelandair operating model used to make sense but in today’s low-cost long-haul market the challenges faced are big enough without carrying the excess baggage of Wow whatever the price per kilo charged!

Sixth Freedom low-yield transfer traffic has always been a marginal game for airlines and there are many casualties along the way that would prove that point. In the case of Iceland, the fundamentals may need to be reconsidered. Can it really be more expensive than Singapore for a one-night stay? Does the taxi fare from the airport have to cost more than a round trip air fare to New York from London? And does a bowl of soup really cost £10?

Perhaps in the short-term the apparent congestion at Keflavik International Airport will no longer be an issue but the planned masterplan and investment of some US$1 billion planned in the next few years is more concerning. Foreign investment in the airport may now be a more challenging pitch than it was a few months back. If anyone needs any concrete there may be some supplies available in Iceland.

Any airline failure is always disappointing, but the reality of Iceland and the transfer market made this so inevitable that even we called it before it happened. We were also ahead of others on predicting one or two other recent events and suspect that there may be a few more yet to come this winter. 

Some may call it consolidation, some may say it’s a shame, but anyone with a crystal ball could have seen this one coming some months back.

 
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-John Grant