When WOW Air declared its bankruptcy and ceased operation in March, leaving thousands of stranded passengers overnight, we wondered how a seemingly successful airline could go out of business. Like most businesses, WOW Air was struggling long before it finally declared bankruptcy.
The demise of WOW Air flights, in particular, was brought about by two specific factors, according to CEO Skuli Mogensen. The company had acquired bigger Airbus A330 jetliners, putting pressure to fill the seats. They also began making changes from their original budget business model. Both of these changes put pressure on the company with extra costs, and when the airline failed to secure investment from Icelandair and Indigo Partners, a private-equity firm.
While WOW Air’s bright purple planes received a lot of media attention, it’s actually the third European airline to go bankrupt this year. Germania, around since 1978 and Flybmi, founded in 1987, both ceased operations in 2019. Low-cost carrier Primera Air and German’s Air Berlin also shut down in 2018 and 2017, respectively.
With air travel becoming more competitive and fuel prices on the rise, those without the funding to offset low airline prices will be left behind. A report published by Kent State University states that “nearly all of the former Big 6 major airlines have filed for bankruptcy or looked for government assistance. Dwindling profits are expected to rise among major airlines as the low-cost carriers continue to lure passengers from the struggling giants.”
As the aviation industry evolves to meet the demands of growing hoards of travelers, the game is changing. Travel is no longer reserved for the rich and famous, and more emphasis is put on offering low-cost options for travelers. Not only are airlines having to reduce their ticket prices to stay competitive, but they’re still left with the operating costs. This includes fuel, servicing expenses, advertising, administration and the cost of buying and storing aircraft.
Over the past 20 years, unit revenues have slowly ticked done around 2 percent every year, according to Mckinsey. One bad year can make a huge impact on airlines, especially newer, budget airlines. For WOW Air, it was a fatal combination of bad business choices and the lack of a financial safety net.
