A friend of mine recently decided to take a spontaneous trip to several countries in Europe (Amsterdam, France, UK) with the final destination being the hallowed home of Ikea, the Mountain from Game of Thrones, and otherworldly landscapes known as Iceland. Though he often would complain to me about the excessive cost of his accommodations in the country, given that every product must be imported, he was proud of how inexpensive his flights were throughout his entire journey. If I remember correctly, his flight from England to Amsterdam was something like $50 or less. Assuming that the only way he found this fare was by convincing a FedEx (FDX) pilot to let him ride in the cargo bay, I asked my friend where he purchased such a ticket. He told me that he acquired the ticket through a low-cost Icelandic airline called WOW air.
Wow, founded in November 2011, currently operates flights to thirty-six destinations in North America, Asia, and Europe, according to their official website. Of course, with fares at such low prices, one can assume that in-flight accommodations are minimal if any. WOW charges its customers for seat selection, food, beverages, and just about any other ancillary detail you can think of. Based on the success of WOW air’s no-frills approach to air travel, the company announced on Tuesday that it been acquired by fellow countryman airline, Icelandic Air (ICEAIR), in an $18 million, all-stock deal.
Per the official statement of the bilateral agreement between the two Icelandic airlines:
“The shareholders of WOW air will, subject conditions, receive a total of 272.341.867 shares or the equivalent of 5.4% of Icelandair Group’s (ICEAIR) shares after the transaction…The companies will continue to operate under separate brands. Their combined market share on the transatlantic market is around 3.8%. The acquisition creates an opportunity for both companies to become even better prepared to provide international carriers with strong competition in the international airline market”
–Icelandair Group Acquisition Statement
Whereas WOW air is considered to be a low-cost, frugal form of air travel, Iceland Air (ICEAIR), currently valued at $455 million compared to its new acquisition’s $25 million, has historically been viewed as a full-service airline for Nordic-bound travelers. As of recent, the company has been struggling with rising fuel costs as well as a decrease in the desire for travel to Iceland. In an effort to combat low-cost competition, Iceland Air simply bought its closest rival, a move executives in other sectors wish was so simple.
The market responded positively to the Nordic airline merger, seeing to it that Icelandair Group’s (ICEAIR) shares jumped 50%, trading at $10.97 per share. Sigurdur Indi Johannsson, Iceland’s minister for transport, told Bloomberg that the government had been observing developments of the WOW air deal and wasn’t shocked when the acquisition was finalized. Johannsson went on to share that the Icelandic government has no concerns for industry competition in response to the merger because over 25 airlines operate flights to and from the country. He believes the merger is a beneficial step towards securing the future of the tourism industry for Iceland.
WOW Air’s founder and CEO Skuli Mogensen had this to say about the merger:
“I am very proud of the success and development that we at WOW Air have enjoyed in the past few years and I am thankful for the response we have received since our very first flight. We have created a strong team that has reached remarkable success and has been a pioneering low-cost flight across the North Atlantic.”
–Skuli Mogensen, Founder, and Chief Executive Officer, WOW Air
In an email discovered by Bloomberg, Mogensen told employees of WOW Air that the Icelandair merger “was not part of the original game plan,” but explained that the synergistic decision was necessary for the betterment of the company.
As more people, like my friend, look to expand their horizons and travel to other countries, the cost-effective flights now offered by Icelandair (ICEAIR) and WOW Air will hopefully entice tourists to visit Iceland and, in turn, put the country on the map as a destination worth traveling to.
