Iceland’s Wow Air Shuts Down After Failing to Raise New Cash
Photographer: Joel Saget/AFP via Getty Images
Founder Mogensen: ‘I will never be able to forgive myself’
Wow Air Hf ended operations after failing to reach an agreement with investors that would have pumped fresh cash into the Icelandic discount carrier.
All 29 flights scheduled for Thursday were canceled and some 2,700 stranded passengers were asked to check with other airlines to get to their destinations, Wow said in a statement on its website.
“We have run out of time and have unfortunately not been able to secure funding for the company,” Chairman Skuli Mogensen said in a letter to employees. “I will never be able to forgive myself for not taking action sooner.”
Photographer: Chris Ratcliffe/Bloomberg
Mogensen had been working furiously over the past months to save the airline he founded in 2011, holding talks with potential rescuers including larger rival Icelandair and U.S. private equity firm Indigo Partners.
This week, Wow bought time when bondholders agreed to convert debt into equity, and the airline reportedly proposed a $160 million turnaround plan.
Shares in Icelandair shot up as much as 28 percent on the news and were up around 14 percent by mid-morning.
Failed Talks
Wow had earlier said it was in the “final stages” of raising new equity from a group of investors, telling passengers flights had been postponed until “documentation with all parties involved have been finalized.”
How will I reach my destination?Passengers are advised to check available flights with other airlines.Some airlines may offer flights at a reduced rate, so-called rescue fares, in light of the circumstances. Information on those airlines will be published when it becomes available. -- Wow Air website |
Along with Icelandair, Wow has played a key role in Iceland’s decade-long boom in tourism, which is now the country’s biggest export.
The closely held airline carried 3.5 million passengers last year. Its crisis has weakened the krona (the currency fell as much as 1.44 percent on Thursday alone), triggering cabinet meetings that saw Iceland’s government rule out a rescue using taxpayers’ money.
Visitors to Iceland are set to drop this year for the first time in a decade, according to the operator at Keflavik International Airport. Stefan Broddi Gudjonsson, an economist at Arion Banki, said the Wow Air debacle would cause tourist numbers to drop by around 16 percent in 2019.
“This announcement comes at bad time for the Icelandic tourism sector, which is now preparing for the high season,” Gudjonsson said.
Economic Impact
Arion is now predicting a 1.9 percent drop in gross domestic product as a result, although his colleague Jon Bjarki Bentsson at Islandsbanki was less gloomy.
“The krona has already weakened some 11-12 percent, and measures have already been taken both within the companies and by the government to react, should this would happen,” Bentsson said.
Finance Minister Bjarni Benediktsson has already said the government is prepared to consider measures to bolster the industry.
Wow Air’s collapse takes the number of European airlines that have failed since last summer to at least eight.
Read: Europe’s Airlines Face Empty Seats and Mounting Losses
Belgium’s VLM announced its liquidation in August, when Switzerland’s Skywork Airlines AG also ceased flights. The German arm of Small Planet filed for insolvency in September, with Azur Air halting operations in the country, and Nordic leisure carrier Primera Air collapsed on Oct. 1.
Most recently, Berlin-based leisure carrier Germania and U.K. regional airline Flybmi ceased operations last month.
— With assistance by Christopher Jasper
(Adds background, analyst quotes, krona and Icelandair share reaction.)