WOW Air, the Icelandic budget airline that shook up the U.S. market with Europe fares as low as $99 one way, will be acquired by rival Icelandair in a deal that could make the company a strong force in the trans-Atlantic market.
The acquisition must still be approved by Icelandair shareholders and by regulators.
Icelandair says the brands will continue to operate independently, but the tie-up could bring restraint to competition that has flooded the U.S. market with new capacity on the two Icelandic carriers.
WOW Air has opened more than a dozen new routes to North America since 2015, with Icelandair often matching its rival’s plans. That’s led to a sudden surge in some markets where nonstop flights to Iceland proliferated practically overnight.
In Cleveland, for example, the midsized U.S. market went from having no nonstop flights to Europe to suddenly having two to the Icelandic capital of Reykjavik after WOW and Icelandair announced flights only about 24 hours apart. And in Dallas/Fort Worth, the airport went from having no nonstops to Iceland to having three after WOW, Icelandair and hometown carrier American all announced new Reykjavik flights in just a two-month span.
Icelandair is more of a traditional full-service carrier, offering business-class seats and amenities more in line with traditional airlines. WOW, on the other hand, is part of a new breed of “ultra low-cost carriers” that charge extra for everything beyond boarding the plane.
Given their different niches in the market, Icelandair says the companies will continue to operate as standalone brands.
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“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,” interim Icelandair CEO Bogi Nils Bogason says in a statement. “There are many opportunities for synergies with the two companies, but they will continue to operate under their own brands and operating approvals.”
Bogason's statement also touched on the importance tourism plays in Iceland's economy.
“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,” he added.
At WOW, CEO and founder Skúli Mogensen developed a reputation as something of a maverick as he tried to find success by rapidly expanding his budget model to long-haul flights between North America and Europe. WOW also had recently announced plans to add India to its flight network.
“I am very proud of the success and development that we at WOW Air have enjoyed in the past few years and I am thankful for the response we have received since our very first flight,” Mogensen said in the Icelandair statement.
“We have created a strong team that has reached remarkable success and has been a pioneer in low cost flights across the North Atlantic,” he added. “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.“
Combined, Icelandair says it and WOW will operate 3.8% of the capacity flying trans-Atlantic routes.