Reykjavík Grapevine - 24.08.2018, Blaðsíða 13

its July statement indicated. The
company hopes to find investors
by the end of August and may need
an injection of funding soon to stay
operational. WOW is hoping to raise
between US$54.5 and
US$109 million by issu-
ing three-year bonds.
This will finance the
company as it transi-
tions to a publicly traded
company—WOW hopes
to be on the stock market
within the next year
and a half. Many of the
amounts shown in the
presentation were in Nordic curren-
cies, indicating where the company is
looking for investors. The Norwegian
investment bank, Pareto Securities,
will handle the initial public offering.
It is one of the Nordic region’s leaders
in this area and previously has helped
raise funds for Icelandair and Norwe-
gian.
The company predicts a 16 percent
increase in revenue from ticket sales
this year and 22 percent next year.
Much of this growth is predicted to
come from raising prices. WOW has
made this prediction before, but
market conditions would not allow it
and competition is only increasing.
Icelandair hoped to raise prices too,
but could not due to ever-increasing
competition. Increased fuel prices
also ate into both companies’ earn-
ings.
Local Complications
Icelandic pension funds have been
major shareholders in the local stock
market, claiming around a 40 percent
stake now. They also own Icelan-
dair. Pension funds had to invest
domestically while capital flows were
restricted for many years after the
financial crisis. However, they appear
to be divesting from local industry.
The króna is hovering around record
highs and the state lifted almost
all capital controls last year, which
allowed them to invest abroad. A more
diverse portfolio will help them to
withstand turbulence in the economy.
The exodus of capital and unexpect-
edly large losses of Icelandair have
pushed the Icelandic stock exchange
down by more than 10 percent in the
last year. Most other western markets
have increased. Pension funds are
cautious and unlikely to take a risk on
WOW Air. After the carrier announced
its losses, Icelandair’s stock price
recovered partially. Icelandair would
be well placed to take back WOW’s
market share if it failed. The carrier
has also professionalized its manage-
ment in recent years and hinted at
its restructuring plans, both of which
have been well-received.
WOW Air and Icelandair have both
partially blamed their troubles on
volatility in the local economy, namely
a strong but fluctuating currency and
labor disputes. There is a long history
of such issues throughout Icelandic
history. Iceland is a small state and
small economies are more vulnerable
to shocks. Many small states try to
mitigate this vulnerability by adopting
a larger, more stable currency. Iceland
proudly resists this strategy and is
the smallest economy to have its own
currency. It increases costs for indus-
try such as WOW. There are arguably
good reasons to have an independent
currency. In 1981, economic problems
led to such high inflation that a new
króna was issued at a rate of 100 to 1.
Instability can also be seen as flexibil-
ity. In 2008 the exchange rate crashed
along with the banks and helped kick-
off the current tourist boom by lower-
ing prices for foreign visitors. It was a
great moment for a budget airline like
WOW to enter the market. It is often
said “what goes up, must come down”.
WOW must be hoping it’s the króna
and not it.
Echoes of ’08?
The timing of these revelations is
ominous, October will mark the
tenth anniversary of the spectacular
collapse of all major private banks
in Iceland. Those banks also grew
incredibly fast after privatization and
collapsed in less than a decade. There
have been fears amongst residents of
the island that the tourist boom would
be as fleeting as the banking bubble.
These fears are generally overstated,
however the utter lack of state and
industry planning could undermine
the industry in the long-run.
WOW’s growth is impressive and
steady, it started with one route in
2012 and now has dozens of destina-
tions. The airline has been profit-
able at times in its short life. This is a
better record than many new compa-
nies. Ultimately WOW Air’s destiny
depends on whether it can convince
enough investors that the company is
capable of long-term profitability.
The reader can draw their own
comparisons to Icarus.
13 The Reykjavík Grapevine
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WOW is hoping
to raise
between
US$54.5 and
US$109 million
by issuing
three-year
bonds
Skúli Mogensen, the sole owner of WOW Air