Icelandair and WOW announce a merger

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THE ANNOUNCEMENT on November 5th that Icelandair and WOW, two Icelandic airlines, will merge will come as some relief to many travellers. The Icelandic flag carrier and its low-cost competitor both specialised in selling budget flights across the Atlantic, via connections at Keflavik, an airport serving Iceland’s capital. Higher oil prices and furious competition on transatlantic routes were putting both airlines under financial pressure. WOW needed an emergency injection of capital to keep it afloat. The deal should help prop up its operations in the short-term, securing the bookings of those who had taken up the offer of cut-price tickets. Another collapse of a low-cost carrier, like that of Primera last month, has been averted.

Whether the deal is good for Iceland’s economy or flyers in the longer term is disputable. The tie-up should remove some financial pressure from both carriers. Icelandair’s stronger balance sheet will help WOW’s ailing one. And with both airlines continuing to operate separately, the deal means they will no longer need to compete on price on the same routes, so they should be able to raise fares. That will not please flyers hoping for a cheap Christmas holiday across the Atlantic, though. Skúli Mogensen, WOW’s founder and chief executive, is rumoured not to be pleased about the deal either, as his original goal was to disrupt Icelandair’s way of doing business, not to team up with it.

Whether the deal will be enough to keep the combined airline afloat in the longer term is another question. Both airlines target price-conscious holidaymakers flying long haul across the Atlantic. Even with the merger, it is still questionable whether the carriers will be able to pass on the costs of rising oil prices and the strengthening Icelandic krona to customers. The expansion of Norwegian, a long-haul, low-cost carrier offering a growing number of direct flights between Europe and America, may attract passengers away from connecting flights in Iceland. “You have to grow or else it doesn’t work,” Mr Mogensen told CNBC, an American broadcaster, in June. Even with its old foe on side, making WOW’s low-cost model work will be a tough job.

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