So What Exactly Went Wrong with WOW Air and What Can We Learn?
WOW Air was an ultra-low-cost carrier situated in Iceland. Due to its location, it was able to offer interested individuals very low prices on flights that connected places in Europe and North America, so much so that double-digit prices were spotted from time to time. On top of this, WOW Air offered free stopovers in Iceland in exchange for its passengers booking round-trip flights, which was useful because said country has been seeing something of a surge in tourism interest in recent times. Unfortunately, interested individuals will no longer be able to take advantage of WOW Air’s upsides because the carrier failed to find a way out of a number of problems, with the result that it was forced to stop its operations on March 28 of 2019.
What Did WOW CEO Skuli Mogensen Blame For Its Failure?
Naturally, there are a lot of people interested in understanding why WOW Air failed, particularly since the event managed to make the news because of the passengers who winded up stranded when the carrier’s operations ceased. In the opinion of the CEO Skuli Mogensen, he has explained the outcome as a matter of him making bad choices that involved turning the carrier into something that it wasn’t supposed to be.
In short, Mogensen stated that WOW Air was profitable until 2017, meaning that it was 2018 that brought the carrier to a precarious state. This is supported by the failed merger with another carrier that happened in 2018, which resulted in the reduction of WOW Air’s fleet from 20 planes to 11 planes as well as the laying off of 111 employees. As for why such things happened, Mogensen explained them as various bad choices on his part.
For instance, he was the one who oversaw the purchase of wide-bodied planes for the purpose of supporting the carrier’s expansion plans in not just its existing markets but also new markets on the Asian continent. This was a serious problem for a number of reasons. One, the wide-bodied planes were expensive in their own right, which didn’t exactly do wonders for WOW Air during a period when its finances were already strained. Two, the wide-bodied planes necessitated further spending to make them usable because they needed different skills, different infrastructures, and so on and so forth in order to keep them running. As a result, their purchase price was no more than the tip of an iceberg submerged in the sea. Third, oil prices rose in 2018, thus increasing the costs needed to keep the wide-bodied planes running. To WOW Air leadership’s credit, they realized that keeping the wide-bodied planes was a bad idea, but by the point that they started moving to reverse direction, they were already too late to save the corporation from the financial hit.
With that said, it should be noted that there were other issues brought up by Mogensen as well. Another example would be the carrier’s choice to add a premium cabin, which resulted in further complications. For example, the premium cabin came with new costs for the new services needed to separate it from the rest of the seating. Likewise, the premium cabin came with new costs for the marketing needed to make it known to interested individuals, which wasn’t helped by the fact that it eroded the brand that WOW Air had already built up for being an ultra-low-cost carrier. In other words, the decision to add premium cabins was very much a mistake along the same lines as the decision to buy wide-bodied planes, though less serious in scale.
Summed up, WOW Air seems like an excellent example of a business that attempted to expand beyond the initial product or service that it was founded upon but failed to get good results out of said expansion effort. Such efforts are always risky because of the costs needed to fuel them as well as the interference that they can generate for core operations. In the case of WOW Air, these issues seem to have popped up at a time when it was already financially fragile, which were enough when combined to bring it low. Theoretically, it could’ve been saved by outside assistance, but the fact that the carrier ceased operations makes it very clear that the effort to secure such assistance failed as well, thus bringing an end to this particular tale.