Icelandair Buys Nearest Competitor: Low-Cost Transatlantic WOW Airlines

Early this week, Icelandair announced plans to acquire the Reykjavik-based WOW air, a company that opened its operations in 2012 and, if you recall, started offering low-fare flights direct to the United States in 2016.  WOW and Icelandair, of course, are direct competitors, sharing many of the same (or similar) routes between Iceland and North America.

Both WOW and Icelandair have direct routes to San Francisco, CA.  WOW, however, also offers US routes from Iceland to Boston, Chicago, Cincinnati, Cleveland, Dallas/Ft Worth, Detroit, Los Angeles, New York, Orlando, Pittsburgh, and Orlando.  In addition, WOW offers flights to Montreal and Toronto, Canada.

By acquiring WOW, Icelandair will add these routes to its existing US and Canada routes.  They already operate in Boston, Chicago, Cleveland, Washington DC, and Orlando, but they also have routes in Anchorage, Baltimore, Denver, Kansas City, Philadelphia, and Tampa.  Icelandair also has Canadian routes in Montreal and Toronto as well as Edmonton, Halifax, and Vancouver.

Together, the pair of airlines only occupy about 3.8 percent of transatlantic passenger traffic.  But even with this very small percentage of the market, both carriers have managed to put some strong pressure on bigger charters on the same routes, thanks to highly attractive fares targeting younger passengers.

For the time being, the companies will still operate under separate brands. After all, the deal is still subject to approval from government regulators and Icelandair shareholders. Of course, WOW shareholders will likely receive Icelandair Group stock in exchange for the shares they hold presently.

While it is easy to suggest, at first glance, that this merger will create more opportunities for both airlines to find the right kind of growth—which is typical with any deal like this—history tells us that before long only one brand will remain.  Still, Icelandair Group CEO Bogi Nils Bogason comments that this will create more opportunities and generate synergy between the two companies. He asserts that Iceland’s tourism industry is a cornerstone of their economy and, more importantly, it is very important to maintain frequent flights to and from Iceland.

What is, perhaps, most important is that Icelandair Group’s purchase of its closest competitor is probably going to raise inevitable questions about how viable a low-cost transatlantic airline.

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