The bargain basement airline business is littered with failures.
But that doesn’t frighten WOW’s Icelandic founder Skúli Mogensen, who started the airline with a personal fortune he made in Montreal. Mogensen says his business represents the future and it is the establishment airlines who should worry.
That may depend on whether WOW, which will begin next May by offering flights priced as low as $149 from Toronto and Montreal to Europe and as low as $99 to Iceland, can survive in the niche no-frills market where every “extra” service has its price.
- WOW air launches $99 flights from Canada to Iceland, $149 to Europe
- WestJet launches London flights from 6 Canadian cities
Mogensen may be just now getting around to offering flights in Canada, but his connections to the country go back more than a decade.
Buyer beware
The WOW airline founder could have retired on his fortune. Instead he poured the money into starting a brand new airline, which he insists will offer the lowest airfares available between Canada and Europe.
Anyone expecting to actually pay only $149 should operate under the “buyer beware” rules of any extraordinarily good offer. Mogensen was cagey even when I repeatedly asked exactly how many flights were available at those rock bottom prices. Nor would he say what the “standard” fare was, directing me to the airline’s website.
“It’s easy to operate at a low price,” says Queen’s marketing professor Ken Wong. “All you have to do is have low costs. And the easiest way to have low costs is to simply offer fewer services, or charge for more of the things that other airlines include.”
Indeed that is the WOW model. The company’s list of “optional fees and charges” goes on for pages. Five kilograms of luggage is included in the basic ticket price, but after that the charges mount. Three pieces of checked luggage, for instance, will set you back $250 for each leg of the flight.
However, as Mogensen says, his only way of competing is on price. If people scanning the internet for the lowest cost flights decide there are lower price options, his business simply won’t survive.
And WOW has some real cost advantages. The company’s brand new aircraft will be cheap to maintain. With a fuel stop in Iceland, the airline can fly smaller planes. That means WOW can bring relatively small loads of passengers from many North American cities and then redistribute those passengers into different aircraft depending on their European destinations.
Of course, as other airlines have found, that kind of co-ordination can cause delays as each departure depends on a series of separate arrivals.
Internet advantage
Launched only in 2011, WOW has none of the legacy costs of established airlines. It has no pensions. It has no costly existing sales network. Instead, using his expertise in the online business, WOW will find its passengers exclusively through the internet and will be run entirely from Iceland.
But even with all those cost advantages, starting a new airline is never a slam-dunk. Ken Wong wishes the brave entrepreneur luck.
“It’s one thing to launch a new business. It’s another to keep it up and running over the long term,” says Wong.
Wong thinks airline services like WOW, if they survive, will remain a niche. He says, like him, most passengers will prefer to use established airlines.
“But if you’re talking about a university student hitchhiking across Europe for a summer, it could be just the product.”
Read the full post in CBC News Business
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