WOW Air’s financial troubles are mounting – cutting fleet in half & cancelling long-haul routes

WOW Air, the low-cost carrier (LCC) offered famously low fares starting at $69 across the North Atlantic from their base on Iceland and started the fare wars with a growing fleet of planes including Airbus A330 for long-haul routes to the US and even India. After the failed take-over by Iceland Air, WOW Air is now announcing a corporate restructuring that includes staff layoffs and the reduction of the fleet by almost half, including all long-haul Airbus A330 planes!

WOW Air took their strategically located base in Iceland to offer cheap flights between North America and Europe, initially with single-aisle planes. They kicked off a fare war with one-way fares as low as $69, grew rapidly and even entered the long-haul market with Airbus A350 planes and routes to the West Coast of the US and India!

But larger LCC Norwegian and the established carriers fought back, drastically reducing fares across the Atlantic. And the long-haul market is very tricky for LCC, with none of them having yet succeeded in making it profitable.

With financial troubles growing, Iceland Air attempted to acquire WOW Air, but it fell through. Indigo, a large US investor with shares in LCCs like Frontier (US), Volaris (Mexico) and Wizz Air (Europe), stepped in to negotiate an investment. 

All of Indigo’s investments are pure short-haul plays and it looks like that the financial problems and pressure from Indigo to focus on a more profitable business have contributed to this corporate restructuring: WOW Air will reduce their fleet from 20 to only 11 planes and is attempting to return planes to the lessors, including all Airbus A330. They are also selling 4 Airbus A321 for a cash injection into the business. 

WOW Airbus A330

This will leave them unable to serve long-haul routes, including the just announced routes to India, focusing them again on short-haul low-cost services. It will make their operations easier, but might make it harder to find alternative route in Winter when the popular stop-overs in Iceland are a lot less enticing!

With the fleet reduction come layoffs of 110 staff and elimination of contract and short-term staff , reducing the work force to 1,000 employees. That seems like a rather tame reduction considering how much the business will shrink, so I’d be expecting another shoe to drop eventually…

What should you do? If you have tickets booked on WOW Air for flights in December, you should be (reasonably) safe as these route changes will most like take effect in mid-January.
If you booked tickets in the last 24h and live in the US or Europe, check the conditions of your sale – you should be able to cancel a ticket within 24h of purchase and I’d do that.
If you hold tickets beyond January, I’d check the terms of your credit card to make sure you’ll be able to get a refund should WOW go out of business or your travel be disrupted. If you hold a ticket for a long-haul flight operated by A330 next year, I’d start to look for alternatives. 
If you are considering to purchase a WOW Air ticket, I’d hold off until it becomes clearer what happens with the airline. If the ongoing talks with Indigo are successful, they might emerge from this healthier and start growing again. If the talks fail, WOW Air might be out of business faster than I can write these posts!
If you do want to go ahead with a purchase, I’d only recommend close in tickets – buying something for a flight 6-9 months out seems like a gamble to me. I’d also only purchase with a credit card that covers you for travel disruptions and will refund you in case of bankruptcy.

UPDATE: It looks like WOW Air has come to an agreement with Indigo and has submitted a proposal to bondholders, setting a timeframe of February 2019 to complete the due diligence and finalize the deal. That’s good news and reason to be cautiously optimistic!

Bottomline: The airline industry has seen a volatile year, with several European LCC going out of business. I’d expect the consolidation to continue and airlines operating at the margin carry additional risk. Buying travel from small providers and airlines in financial difficulties can prove to be more expensive than expected…

You can find the WOW Air Announcement here.

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