Michael Gallinari
Mike is a US Travel and Leisure Reports Analyst at Mintel. Mike writes reports about consumer travel preferences as well as leisure market research.

Icelandic low-cost carrier WOW Air abruptly ceased its operations on Thursday morning, leaving thousands of unfortunate passengers stranded as a result. The news of the now ceased operations is not necessarily surprising for those who have been following the airline’s recent turmoil. Since November of last year, the carrier failed to be acquired by competitor Icelandair and saw their deal with budget airline holding company Indigo Partners fall through, resulting in the demise of the carrier.

In truth, WOW may merely be the victim of a business model that had a bright, shining moment, but no realistic hopes of sustainability.

How it happened

The airline started in 2011, one year after volcano Eyjafjallajökull’s eruption disrupted continental air traffic and brought new attention to the island as a destination. Starting out by flying low-cost routes to Northern Europe, the airline became popular enough that it could branch into other European destinations.

In 2015, with jet fuel costs rapidly declining and eventually hitting their bottom, the airline expanded its routes to transatlantic destinations. The intent was to leverage Iceland’s geographic position as the closest European country to North America as well as its newfound popularity as a tourist attraction to fill its planes with people eager to cross the ocean and see a trendy tourist spot on the way.

Almost half of air travelers overall prefer flying a low-cost airline as opposed to other airlines.

So what happened? Did founder Skúli Mogensen mishandle the company, or is the low-cost transatlantic model simply impossible? Essentially the latter.

There’s a lot to be said for what low-cost carriers including WOW do right, or at least on-trend. According to Mintel research on airlines, nearly six in 10 vacationers flew Economy class in the past year while three in 10 flew Basic Economy. Almost half of air travelers overall prefer flying a low-cost airline as opposed to other airlines. This is an indicator that the stripped-down, pay-for-what-you-use model that low-cost carriers follow has a lot of traction among price-conscious travelers.

What we think

The harsh reality of operational costs is what grounded the airline. Fuel costs rose steadily through 2016-18, and put the squeeze on the bottom line of every carrier. Unless a much cheaper fuel alternative becomes available, or technology advances to the point where a given airline’s other major cost – labor – can be mitigated, dedicated low-cost carriers using price as a differentiator for transatlantic air travel just isn’t in the cards.