LONDON – The Icelandair Group has agreed to acquire the entire share capital of low-cost rival Wow Air.
WOW Air is a fairly new airline. The carrier was founded in 2011 by Icelandic Entrepreneur, Skúli Mogensen.
Seven years on, the airline operates an all-Airbus fleet, consisting of a mix of A320 and A330 family aircraft, with an average age of 2.5 years.
As the transatlantic market’s competition increases, Wow Air has struggled to operate profitably and with a positive cash flow.
At the moment, Icelandair’s purchase is subject to approval by the group’s shareholders, Icelandic competition authorities, and a due diligence.
Initial reactions in Iceland are not as positive, with people claiming that a new era of “airfare monopoly” is about to begin, once again. By combining both carriers, overall fares might see a substantial increase.
However, should the transaction move forward, Icelandair might ensure the future of the low-cost carrier.
Under the plans, both airlines “will remain separate” but under the same group’s umbrella.
WOW Air shareholders will receive a total of 272,341,867 shares, or the equivalent of 5.4% of the group’s shares after the transaction has been completed.
This is a big step for the transatlantic market as now the carriers have a combined market share of 3.8%, creating opportunities for both companies to fight off stronger competition in the market.
Bogi Nils Bogason, Interim President & CEO of Icelandair Group complimented WOW Air and expressed reasonings for the takeover.
“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,” he said.
“There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals.”
Analysts believe this is a smart move by both Icelandair and WOW. Both carriers, especially the low-cost, have experienced tremendous growth and overlap in a short span of time.
This move by Icelandair might allow them to move upmarket while retaining WOW as the true low-cost carrier that it is.
“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,” said Boganson.
In the next few days, the Icelandair Group are to convene a shareholders meeting where votes will be held on the acquisition.
Skuli Mogenson, CEO and Founder of WOW Air expressed happiness of this takeover as well as enthusiasm over the strong backing.
“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,” he said.
“We have created a strong team that has reached remarkable success and has been a pioneer in
Mogenson coined this as “a new chapter,” 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.”
This is a significant step in the transatlantic market. By consolidating the two carriers under two separate brands, it makes way for competing in the different areas of the industry.
If approved by the relevant authorities, then this could make the Group quite a fighter for the transatlantic market in Iceland.
Both airlines have a combined fleet and orders of 52 planes plus 14 on order (Icelandair) and 20 planes plus 4 on order (Wow), as of October 2018.