WOW AIR, an Icelandic low-cost carrier, will launch flights to Los Angeles and San Francisco next summer. The airline is the latest to bring the low-cost model to long-haul flying, as it tries to rekindle Reykjavik’s historic role as a budget layover for flights between Europe and North America.
WOW operated its first transatlantic flights this year, serving Boston and Washington Baltimore with a pair of narrow-body Airbus A321s. Having been profitable for the first nine months of 2015, Skuli Mogensen, the airline’s boss, says he has “proved the model works” and is now eager to scale up. WOW will also add two Canadian points, Toronto and Montreal, in spring 2016.
Los Angeles and San Francisco are obvious first choices for West Coast expansion, but with the new destinations comes an evolution of the business model. Until now, WOW has taken advantage of Reykjavik’s location in the mid-Atlantic by deploying relatively small narrow-body aircraft to America. Almost all its European and North American rivals must fly further, and so use larger wide-bodies that can pack enough fuel for the journey. Narrow-bodies have two advantages for low-cost carriers. They have faster turnaround times, which means they can be worked harder. And they have fewer seats, which pushes down operating costs. It’s a nice hand that only Iceland and Ireland, on the western extremities of Europe, can play with current aircraft.
At nine hours’ flying time, however, the West Coast of America is beyond the A321’s reach. So WOW is leasing three wide-body A330s for the new routes. In doing so, it is joining the club of low-cost carriers that have tried to make money with scheduled wide-body flights. Few have succeeded.
Norwegian Air Shuttle is the most prominent contender in the transatlantic market, though with a business-class cabin and return fares starting at £360 ($544) its low-cost credentials are open to debate. In Asia, AirAsia X, Scoot, JetStar, Cebu Pacific and Jin Air offer budget flights with wide-bodies, although judging their success is tricky; over-capacity means that few Asian carriers are currently profitable. In any case, WOW’s Asian counterparts favour mid-haul over long-haul wide-body services. The only one to push the boundaries quickly regretted it. AirAsia X began flying between Asia and Europe in 2009, when oil was priced at $40-per-barrel and operating costs were low. It pulled the plug in 2012, after fuel prices tripled. Even with a business-class cabin it couldn’t make the model work.
Given that WOW is launching with an all-economy layout during a period of low oil prices, some pundits are downbeat on its prospects. Mr Mogensen is undeterred. He believes that low-cost carriers have only struggled in the transatlantic market because of “semi-cartel”-like behaviour by incumbent full-service airlines. The advent both of the EU-US Open Skies treaty and direct sales over the internet should, he argues, make anti-competitive behaviour less of a threat.
Be that as it may, low-cost long-haul flying remains an experimental concept. To some, it is a paradox. Low-cost carriers create new demand by offering rock-bottom fares to price-sensitive customers. But unlocking those fares means stripping costs to the bone, primarily by cramming seats into planes and unbundling non-essential perks from base fares. On a two-hour flight, many will tolerate squashed legs and empty stomachs. On a nine-hour trip, such impositions become torturous. WOW has already tweaked its on-board service since going long-haul, lifting cabin-baggage allowances to include a second laptop-sized bag. The seating capacity on its A321s will soon be 212 (compared with 230 for Wizz Air, a short-haul carrier); and on its A330s it will be 340 (compared with a whopping 436 for Cebu Pacific).
“Sometimes it makes sense to spend a little bit more to increase the customer service,” Mr Mogensen says, stressing the importance of positive online reviews. “It’s not enough only to be the lowest price. The internet is a very tough boss.” Asked if such compromises violate the “ultra-low-cost” model, he pauses for a moment, before retorting: “I prefer to say ‘ultra-low-fare’.”
Back in the 1960s, Loftleiðir, a precursor to Icelandair, came to be known as the Hippie Express for carrying American students to Europe on a shoe-string budget. WOW’s branding is more befitting the Instagram generation, but its business model focuses on those same budget travellers who tolerate frugal service and time-consuming stopovers in the name of saving money. If it succeeds then perhaps expansion into Asia beckons, hints Mr Mogensen. Given the history of similar ventures, that is a big “if”.