What the Demise of WOW Air Means for Iceland

Because WOW Air collapsed last month, the end of its budget fares to Iceland has posed a stark challenge to the tourism-heavy Icelandic economy. In 2018, the carrier brought about 30% of visitors to the island nation. While future trends are difficult to predict because other airlines may add capacity to Iceland in response, WOW Air’s termination could result in a 16% slowdown in tourist traffic this year.

Above all, the company’s primary problem was overeager expansion. When the airline grew its fleet and route network too quickly, it set into motion the sequence of events that led to its downfall. Furthermore, rising fuel prices and the inability to find external investment exacerbated the airline’s financial crisis.

While Icelandair will bring a large percentage of tourists to the nation throughout this year, the absence of WOW Air from the market means that passenger fares may increase. With fewer options to get to Iceland, potential tourists may opt for other destinations.

Source: Wharton