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Startup Cemetery

A big resource for entrepreneurs and startup owners, in which we have collected and analyzed why +100 big companies have failed. Learn from mistakes, and avoid being part of the 90% of businesses that fail.

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WOW Air

Ultra-low-cost transatlantic airline service

General Information
Category
Transportation
Country
Iceland
Started
In 2011
Business Failure
Business Outcome
Bankruptcy
Closed
By 2019
Cause of Failure
Multiple Reasons
Founders & Employees
Number of Founders
One
Name of Founders
Skuli Mogensen
Number of Employees
Between 51 And 100
Funding
Number of Funding Rounds
1
Total Funding Amount
-
Number of Investors
1
Description

WOW Air was the Icelandic answer to RyanAir for low-cost air travel in Europe. Founded in 2011, it operated between Iceland, Europe, Asia, and North America. In 2012 WOW Air took over operations and flight network from another home-grown low-cost carrier, Iceland Express. The airline carried over 400,000 passengers in 2013 and reached its 1 millionth passenger on December 2014. By 2015, WOW Air had expanded its flight operations to North America, with flights to the U.S. starting in 2015, followed by Canada in May 2016. Within the next 2 years, it would also add more destinations in the Middle East as well, like Tel Aviv, Israel.

Cause of Failure

In the first few years that it started operations, WOW Air delighted their US travelers with the prospect of below $100 flights to Europe. How true was it? Well, in 2017, WOW Air was accused of spreading false claims, after media outlets reported its claim that it would fly passengers from London to New York for £99, which it said was below cost. That flight leg, priced at £99, was only available as part of a more expensive return flight!

Aside from these false rumors and claims, which some may say are a common thing within the airline industry anyways, there are some bigger reasons.

In a Financial Times interview, WOW Air CEO Skuli Mogensen stated that the reason the airline essentially failed was their decision to hire a fleet of wide-body Airbus A330s (which added up to significantly higher fuel costs). He also stated in that interview that this decision, which turned out to be a final nail in the coffin for WOW Air, was taken while there was too much debt on the balance sheet and given the challenging environment in the airline industry, they could not secure further funding.

It's true that the ultra-low-cost airline industry, especially in Europe faces a challenging environment. Since the summer of 2018, 8 European airlines had failed according to an article by Bloomberg (with most blames going towards rising fuel prices). The case of WOW Air is nothing new in these regards.

The unique case of the spectacular failure of WOW Air can be frankly described in one sentence - They wanted to become too big too fast.

Within a short span of time, since they started in 2011, WOW Air was reportedly planning to add 15 destinations in Asia just before going bankrupt. With just 10 planes, they planned to cover 30 destinations (no wonder they averaged 15-30 minutes late for most of their flights). By comparison Southwest Airlines a US-based low-cost carrier has 750 planes for 100 destinations. They also overthought the importance of Iceland as a destination for stopovers on transatlantic flights, while acting as if they were too big to fail, and thought that somehow the Iceland government, given the importance of tourism in the country, would bail them out of their debt burdens. 


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