It is a little hard to believe that it is almost the one year anniversary of the bankruptcy of Wow Air. This low cost Icelandic airline went bust on March 28th, 2019. On that date last year, everyone was shocked when the airline suddenly ceased to operate. During this episode, I will go over why and how the airline skyrocketed to success, what it was like during its heyday, what caused WOW Air to fail, how its bankruptcy affected the Icelandic economy, and what’s next. 

Skúli Mogensen – The Founder of Wow Air

To me, the most logical place to start this story is with Skúli Mogensen, the founder of WOW Air. 

Born to Icelandic parents, Skúli spent much of his youth in Sweden. His dad was studying to become a physician there. He is fluent in Swedish and Icelandic. Skúli moved back to Iceland and attended high school and some college years there. He didn’t finish college because his company Oz Communications, a mobile software company, took off, so he dropped out. 

According to an interview in the Financial Post, Mogensen credits his entrepreneurial drive to his education at the University of Iceland. One of his philosophy professors encouraged him to challenge everything. He is quoting as saying in the article, 

Challenge the status quo, challenge the dogma and challenge whatever worked yesterday. I think today the speed of things requires you to ultimately — maybe not always challenge, but at least ask questions about whether what you are doing today will actually work tomorrow.

Skúli´s Philosophy Professor

Skúli Dropped Out of College to be an Entreprenuer

Skúli was able to grow OZ to over 200 employees. The company sold more than 100 million copies of its messaging software to major mobile operators. Nokia ended up buying OZ communications in 2008 for an undisclosed amount. Along with starting OZ, Skúli also co-founded Íslandssimi, which is now Vodafone Iceland. Additionally, he co-founded CAOZ, a 3-D animation studio that works on production for films, commercials and games. His serial entrepreneurship made him a billionaire. After selling OZ communications, Skúli went into early retirement at the age of 40. However, he quickly grew tired of it after a couple of years.

According to a Forbes article about Skúl in 2018, he said  “I was a failure at retirement. I wanted to use technology to disrupt the market and the airline industry is a good sector for that.”

WOW Air was Born in 2011

<figure class="wp-block-image size-large"></figure>

Skúli was ready to go full force into starting an airline with his own money. His family, friends and investors urged him not to do it back in 2011. One thing to remember about this time is that Eyjafjallajökull volcano had erupted in 2010.

Even though the ash from the eruption had disrupted air travel for people around the world, the media focus on Iceland had exposed to the world that the country was home to some of the most spectacular nature. Icelandic tourism was starting to increase around that time. However, Skúli’s idea of starting a low budget airline helped skyrocket Icelandic tourism into being one of the main industry to revive Iceland after the economic crash. 

Cheap Airfare Helped to Fuel Tourism to Iceland

The trans-Atlantic low cost airline started off with fares starting from $99 for basic seats and service. You could fly from some cities in the U.S. to Iceland and the rest of Europe. Those fares, along with the value of Icelandic krona being so low, made traveling to and in the country affordable for many people who wouldn’t otherwise have come here. 

Within its first year, the airline transported 110,000 passengers. That number quadrupled just five years later. It’s incredible that in 2017 it had been reported that 2.8 million passengers had flown with WOW Air. I moved to Iceland in the summer of 2016. I remember thinking that it must be so cool to work for that airline. They had such great advertisements, happy looking staff and it seemed like their growth would not stop anytime soon.

Skúli & WOW Air Were Flying High

<figure class="wp-block-image size-large"></figure>

In 2017, they had surpassed Icelandair, their main rival, for the number of outbound Icelandic passengers and had 38% market share. Skúli was hiring talented people from around the globe because there just weren’t enough people in Iceland to fill the roles. I think the diversity in the company and the fact that people worked in teams, helped to WOW Air to set themselves apart.

 By 2018, the airline had purchased 20 planes, had over 1,000 employees, and was flying to over 35 cities internationally. Incredibly the airline had been growing at a rate of 75-80 percent every year since its inception. At least that was the number reported in a Forbes article in 2018.  

Trouble in Paradise

From an outsider’s view, the fast growth seemed amazing but on the inside crucial mistakes were being made that would eventually lead to the company’s demise. The biggest red flag is when WOW Air reported a loss of ISK 4.8 billion ($39.3 million, at the time) between July 2017 and July 2018. It was also reported in 2018 in media outlets that WOW Air owed ISAVIA, the state owned company that runs the airport, ISK 2 billion in landing fees. So, the company essentially owed the tax payers of Iceland this money.

On top of that, the rising cost of fuel worked against them. At the end of August 2018, jet fuel had risen to $92 a barrel. That was a 25% increase when compared to the year before. To make matters even more complicated, competition among airlines that have transatlantic routes is fierce. The odds kept getting stacked against WOW Air. Skúli wanted to keep his company alive but he couldn’t do it on his own anymore.

Skúli Turns to Icelandair for Help

<figure class="wp-block-image size-large"></figure>

In the fall of 2018, the company explored all of its options for staying afloat. Even though bondholders of Wow Air pumped ISK 8.2 billion ($66.9 million at the time) in the airline, it still wasn’t enough. Reality started to hit hard when the airline had to stop operating routes, such as San Francisco, Cincinnati, Cleveland, Pittsburgh, St. Louis, Edinburgh, Stockholm and Tel Aviv.

That might have seemed bad but the worst was yet to come. The one thing Skúli was dreading was having to go to Icelandair for a bailout. Unfortunately, I am not privy to what it was like to work for WOW Air but it was well known that they saw Icelandair as their biggest competitor. It must have been quite humbling for Skúli to have to swallow his pride and try to convince Icelandair to save his company.

The Talks with Icelandair Go South

During the talks in November, the mutual benefits were laid out on the table. If Icelandair merged with WOW Air, it would solve the company’s debt problems. In exchange, Wow Air would be able to help the national airline be more competitive on the international market. The deal would be that they would continue to operate under their existing brands. This merger would mean that Icelandair would control 3.8% of the Atlantic aviation market.

The shareholders of Icelandair were hesitant about approving this deal and, unfortunately, it fell through. For Skúli, it was a lost battle but he still planned to win the war. Before I go any further, I have to point out that during this time, Wow Air went ahead with operating low cost flights to India, even though it was clearly struggling to stay alive. I don’t know if this was purely an act of desperation by the company or a ploy to show people that they were ok. 

IndiGo Partners Shows Interest in Investing

Skúli was in talks with Indigo Partners about a potential investment. Indigo Partners is a private eq