The WOW factor – strengths, weaknesses, opportunities and threats to Iceland’s growing LCC

Having lived in the shadow of Icelandair’s effective European and North American network strategy since it launched services in 2012, WOW air has now exploded into the low-cost transatlantic market with a network (including recent route announcements) that covers over 30 destinations in Europe and North America. And having grown capacity by over 90% in 2016, it expects to continue its rapid rise as the low-cost long-haul model continues to stimulate traffic across the Atlantic.

The airline reportedly grew its passenger count by 98% to 1.9 million in the first eight months of 2017 and OAG schedules data indicates a 73% increase in seat count for the full year. From a standing start in 2012, WOW air had 28% of seats at Reykjavik Keflavik International Airport in this year’s peak summer week, operating to 19 European destinations and 10 in North America (the latter all launched since summer 2015).

CHART – WOW air may have been flying for five years, but has grown rapidly over the past couple of years after adopting a hub model in IcelandSource: CAPA – Centre for Aviation and OAG

WOW air has achieved its impressive growth by pursuing a trans-Atlantic connecting strategy, essentially modelled on its local rival Icelandair, but with lower costs and fares. The LCC has managed its impressive growth while achieving high load factors and respectable profit margins.

The Sep-2017 launch of Reykjavik-Tel Aviv marks its first route outside Europe and North America, signalling its ambition to expand the reach of this connecting strategy eastwards. Asia is now in its planning for inclusion within five years, its chief executive officer Skúli Mogensen confirmed recently.

Speaking at the World Routes network development forum in Barcelona, Spain earlier this week, he highlighted that the airline’s focus has become “more than just flying passengers,” and increasingly it needs to look outside the box in the modern environment. “The challenge is are we a tech company or are we airlines at a point of innovation that will change how we approach, manage conversation with our customers pre-, during- and post-travel,” he said.

In an Insights analysis, CAPA – Centre for Aviation says WOW air is the leading airline by seats in 15 of the 29 routes it currently serves, including nine where it has no competitor. The comprehensive analysis from the aviation market intelligence, research and data solutions specialist identifies the strengths, weaknesses, opportunities and threats for the Icelandic carrier.

Strengths include… WOW air follows a low cost model; WOW air has successfully managed rapid growth while achieving profitability; WOW air has achieved respectable load factors on most of its US routes; WOW air operates a modern all Airbus fleet; WOW air’s founder and CEO is a charismatic leader with a driving vision; WOW air’s airport network is quite diversified; WOW air is number one or number two on all of its routes.

Weaknesses include… WOW air’s widebody fleet is subcritical mass; WOW air’s fleet is all leased, bringing higher costs; WOW air has no codeshare or commercial partnerships; WOW air’s market share at its main airports is low; WOW air operates a low frequency schedule.

Opportunities include… WOW air’s Reykjavik hub location is located between Europe and North America, and benefits from inbound tourism; WOW air can grow  its network in the Middle East and add Asia Pacific and Africa; WOW air’s A330neo order offers greater cost efficiency.

Threats include… Over expansion could threaten WOW air; WOW air’s CEO may leave or make a lesser contribution; WOW air is exposed to growing competition; Others could attempt to replicate WOW air’s model; WOW air could face the threat of incidents and accidents; WOW air’s growth could be slowed if Keflavik Airport reaches capacity limits.