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Wow Air collapse highlights competitive pressures facing budget airlines

"The failure of Wow Air is symptomatic of the intense competition that the European budget airlines operate under,” said Fiona Cincotta, senior market analyst at City Index
Wow Air
Wow Air has stopped operating and cancelled all flights

The collapse of Iceland’s Wow Air underlines the struggles budget airlines are facing from fierce competition.

The airline, which employs 1,100 people, has stopped operating and cancelled all flights after failing to secure emergency funding.

READ: Flybe shares fall as weekend collapse of rival Flybmi focuses investor attention on low-ball takeover bid

"The failure of Wow Air is symptomatic of the intense competition that the European budget airlines operate under,” said Fiona Cincotta, senior market analyst at City Index.

“While Wow was based out of Iceland, as a regional carrier it had to compete on price against many other commercial airlines.”

Other airlines that have collapsed under the pressure of a price war include British regional airline Flymbi, Air Berlin and Monarch Airlines.

In another sign of trouble for the sector, Flybe was in January taken over in a cut-price deal by Connect Airways, a joint venture including Virgin Atlantic, Stobart Group Ltd (LON:STOB) and Cyrus Capital.

Low-cost carrier Norwegian launched an emergency £270mln fundraising in January after a possible takeover by British Airways owner International Airlines Group (LON:IAG) fell through.

Wow Air’s failure comes after its main rival, Icelandair, and US private equity firm, Indigo Partners, walked away from buying the airline.

Indigo and Icelandair both backed away in recent days, leaving Wow Air to seek a financial restructuring with bondholders and other creditors.

“Wow had been fighting to recover from the damage done to its profits from higher oil prices last year and had returned four Airbuses it was leasing in November,” said Cincotta.

Cincotta said key threats to budget airlines include strikes, changes in regulations, higher oil prices, intense competition and the expense of landing slots to busier destinations.

She added: “Wow Air should not be compared with more established carriers, either multi national airlines that control multiple aviation brands like AAA, or the bigger discount operations like easyJet.

“But while it is easier these days to get an airline off the ground, it is tougher to keep it flying.”

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