BREAKING | Icelandair Group leaves Wow air to fend for itself
Icelandair Group has walked away from its plan to take over home-based Wow air. In an unexpected announcement on November 29, 2018, the Group stated that the acquisition of the budget carrier, based on a purchase agreement that was signed just three weeks ago, has been cancelled. The failed merger raises concerns whether the low-cost carrier will collapse and the repercussions on Iceland’s travel industry that would ensue.
In a statement on November 26, 2018, Icelandair Group warned that it would be unlikely that all conditions in the share purchase agreement would be met by the shareholders’ meeting on November 30, where the final decision on the acquisition of Wow air was to be made.
But, “that situation remains unchanged,” the Group stated in an official press release on November 29. The company believes it cannot recommend its shareholders to agree to the purchase agreement. It does not intend to suggest postponing the decision-making either.
"The planned acquisition of Icelandair Group of Wow air will not go through. The Board of Directors and management of both companies have worked on this project in earnest. This conclusion is certainly disappointing,” Bogi Nils Bogason, Interim President & CEO of Icelandair Group, said in the press release.
The Group says both parties have agreed to abandon the deal. Skúli Mogensen, CEO and Founder of Wow air, said it was clear from the start that to complete the pre-conditions of the share purchase agreement in such short period was an “ambitious task” and overall, a “challenging project”.
Things did move fast for the two parties. On November 5, 2018, Icelandair Group issued a statement confirming a purchase agreement of all of Wow Air’s shares. The takeover was explained as an attempt to provide “strong competition” in the international airline market.
Wow air pioneered in low cost air travel across the North-Atlantic. Icelandair Group, a travel industry corporation, is parent of national carrier Icelandair. The two rivaling companies hold around 3.8% of the transatlantic market combined.
“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,” chief of Icelandair Group remarked at the time of acquisition announcement.
Although Wow air is Icelandair’s rival, if the discount carrier was to go belly-up, that would certainly be a hit to the country’s tourism industry and, in turn, hurt Icelandair Group.
Wow air has experienced rapid growth in recent years. Since it was established in 2011, the budget carrier has successfully expanded with destinations across Europe, North America and Asia, carrying approximately 2.8 million passengers in 2017, and expecting 3.6 million travelers in 2018, as the airline itself states.
But things have slowed down significantly. In August 2018, a leaked presentation revealed the airline was seeking investors, as it suffered a $13.5 million loss in 2017 and was bracing for another $28 million downfall in 2018, local media reported at the time.
In its latest, third quarter 2018 financial results, released on October 31, 2018, the company indicated low airfares, decrease in load factor and high fuel prices as reasons behind the staggering 36% drop in profit compared to same period last year, as well as a 26% fall in EBITDA.
Recent development calls for more concern. Having launched flights to three new destinations in the U.S. in May 2018, Wow air announced on October 17 that it is already cancelling the routes.
Earlier this week, on November 27, 2018, Wow air reduced its fleet by four planes: two Airbus A320-family aircraft and two A330-300s. The airline said it was downsizing its fleet “in cooperation with its lessors”.
There are poignant indications that budget transatlantic carriers are struggling: just remember the Scandinavian low-cost carrier Primera Air, which declared bankruptcy back in October. Wow air’s future remains to be seen.
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