Reykjavík Grapevine - 14.10.2018, Blaðsíða 13

to fly to the north of Iceland will once
again have to transfer to the Reykjavík’s
domestic airport. They are also cutting
one route to Greenland, and two to the
United Kingdom. The carrier will also
sell off one of its six new aircrafts.
WOW indeed
WOW Air also recently announced its
first loss of $13.5 million USD for the
whole of 2017—significantly smaller
than its main competition. It did see
a large increase of revenue, taking in
$486 million USD during the financial
year. This is nearly a sixty percent
increase over 2016. The company also
blames increasing oil prices and the
strong but unstable local currency for
their losses.
The airline was founded in 2011
by Icelandic entrepreneur and sole
owner Skúli Mogensen. Its first flight
was to Paris the following year. Earlier
this year, Skúli hinted at trouble by
stating that the company was thinly
capitalised, in what some saw as an
attempt to attract investors. WOW will
also be ending its Tel Aviv route this
winter. According to Haaretz, the route
will open again next year.
Shorter stays
It was hoped that tourism would be
spread out around the country in
coming years, prompting international
airl ines to try f lying to other
destinations within Iceland. However,
tourists are taking shorter trips to
Iceland and spending their time in the
southwest, due in part to the exchange
rate and high prices. Flights from the
UK to Akureyri and Egilsstaðir have
been reduced or cancelled. The króna
has reached near record strength
against foreign currencies since capital
controls were lifted last year.
Moreover, both Icelandic airlines
are facing increased competition from
foreign competitors. The number of
airlines serving Keflavík International
Airport has grown substantially, with
thirty carriers flying in from nearly a
hundred destinations. United Airlines
is the latest US carrier to enter the
Icelandic market, with daily summer
service from its hub at Newark, and
other airlines are adding new routes.
British Airways recently announced it
would start flying a Pittsburgh-Keflavík
route. WOW started flying there last
year.
Things are tough all over
There are also concerns about the
growth of the low cost airline market.
This has fostered intense competition
between airlines—and caused warning
signs the Icelandic companies should
heed. UK based Monarch Airlines
went out of business suddenly in
2017, leaving over 100,000 passengers
stranded. They chalked the failure up to
stiff competition from other low-cost
airlines, low prices due to excess
capacity and the depreciation of the
pound due Brexit, which increased its
costs.
The Icelandic króna has a long
history of instability and has already
hurt both airlines. Having limited
capital is a danger to WOW Air, and
could mean the airline would have
trouble weathering a crisis. Icelandair,
however, is capitalised, and has
survived other crises.
Norwegian Air Shuttle (NAS) has
also been having trouble. NAS’s story is
similar to WOW’s—it began as a small
regional airline and over the last ten
years has expanded considerably. The
airline has been having both labour
issues and recurring issues with its
modern fleet of Boeing aircrafts. The
company’s CEO and largest shareholder
has tried to circumvent Norwegian
labour costs by incorporating a
subsidiary in low-tax Ireland, resulting
in strikes and disrupted service.
Frequent maintenance and repairs
required of their 787 Dreamliner’s
engines is also increasing costs
and hampering service. The lack of
redundancy means that if one plane is
out of service the whole route is shut
down. Passengers cannot be shifted
to another flight and must wait. The
cost savings that work well on shorter
flights do not always work for on longer
ones. For example, fuel costs on long-
hauls are significantly higher. More
discerning customers will opt for a
more traditional airline.
The two giants of the Icelandic
market have issued optimistic public
statements about the futures of
their companies and believe they
will overcome their current financial
troubles.
13 The Reykjavík Grapevine
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“Having
limited
capital is a
danger to
WOW and it
would have
trouble
weathering
a crisis.
Icelandair
is
capitalized
and has
survived
other
crises.”
Wow.. Skúli!