Posted on: 05 November 2018 by Mark Howells
Low-fare Icelandic carrier Wow Air is to be bought by its domestic peer Icelandair Group after entering into a purchase agreement for the latter to acquire all its shares.
The acquisition is subject to approval by Icelandair Group’s shareholders, domestic competition authorities and due diligence. Wow’s shareholders will, subject to conditions, receive a total of 272,341,867 shares, equivalent to 5.4% of Icelandair Group’s shares after the transaction.
The airlines will both continue to operate under separate brands, with their combined market share on the transatlantic market put at around 3.8%. “The acquisition creates opportunity for both companies to become even better prepared to provide international carriers with strong competition in the international airline market,” they stated.
Skúli Mogensen, CEO and founder of Wow Air, said “We have created a strong team that has reached remarkable success and has been a pioneer in low-cost flights across the North Atlantic. A new chapter now starts where Wow air gets an opportunity to grow and prosper with a strong backer like Icelandair Group that will strengthen the foundations of the company and strengthen its international competitiveness even further.“
Bogi Nils Bogason, interim president and CEO at Icelandair Group, added: “Wow Air has in recent years built a strong brand and enjoyed great success in the company’s markets to and from Iceland and across the Atlantic. There are many opportunities for synergies with the two companies, but they will continue to operate under their own brands and operating approvals. The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.”
Over the next few days Icelandair Group will convene a shareholders meeting where they will cast their votes on the proposed acquisition. A shareholders meeting will be convened with at least three weeks’ notice.
$1 Bn gross revenue
Wow has just over 20 aircraft in its fleet at present, with Mogensen saying at the recent Aviation Festival in London in September that it was on course for $1 billion in gross revenue in 2019 and considering an IPO within the next couple of years. Only approximately 12% of its passengers are domestic and it operates no domestic flights.
He was also keen to wave the flag for Iceland as an aviation hub for budget long-haul routes, particularly for routes between Asia and the US. Wow is launching low-fare flights from India to the US in December using brand-new Airbus A330neos aircraft, for example.
He said at the festival: “Look at Iceland strategically, and it cannot be replicated. It doesn’t matter how much money you have, you can’t build another Iceland! It’s perfectly suited to be that hub between Asia and North America, and even back into Europe. Even if it adds a couple of hours to a trip, going from Delhi to London via Iceland. It might not seem obvious but if you are saving $100, you will have a lot of takers.”
He also pointed out that Wow was flying its fleet with a 90%+ load factor. “When we started, no one was really talking about low-cost long-haul. Everyone was saying you can’t do this, you can’t do that. You need to focus on the key essentials. Clearly low-cost means having a lower cost structure, to offer lower fares than the competitors. That’s a given.
“Some people said you cannot apply the low-cost model to long haul, and I never understood why. If you offer a lower fare, people will come. The reason why we have 90% load across our entire network is, even if we are constantly adding new destinations, we have no traditional marketing, no offices around the world, it’s all done online.”