What has been the impact of losing WOW for Icelandair? Not too much news about it, though Bloomberg had a very insightful story. The impact has been significant, and perhaps more serious than has been considered. The news about Icelandair firing pilots is indicative of more than a MAX issue. How is it rational to layoff pilots during a worldwide pilot shortage? It is only rational when your plans for flights have started to evaporate as traffic eases. Let’s look at the US-Iceland market.
Has traffic from the US to Iceland started to taper off? No. Take a look at the following chart. The chart shows the amount of traffic from the US to Iceland as reported on the T-100 through year-end 2018. The EU line shows that Icelandic airlines have enjoyed this market’s growth, with US carriers way behind.
It is clear traffic has grown. But the news is that the US majors have noticed this market growth. Icelandair is not competing with WOW anymore. The table below illustrates the T-100 numbers reported.
In 2018 the US majors decided to chase this market. WOW grew fast and by 2018 had transported over 555,000 passengers. WherasDelta had been in the market for some time, American and United moved in. With the ability to feed and distribute traffic far more effectively than Icelandair the writing is on the wall. Icelandair recently struck a deal with Alaska. But that has hit a hiccup. Iceland is a one-kind-of-destination. The island gets more international visitors than it has residents. If you haven’t gone, make plans to visit.
Icelandair’s deal with Alaska Airlines will hardly dent the US origin traffic. The following chart illustrates the 2018 traffic from the US to Iceland, by origin city.
Notice the preponderance of hubs or near-hubs. These are US airline strongholds. Who do you think is going to control (i.e. price) that traffic? Not Icelandair. Iceland is a seasonal and leisure market and while WOW made an impact quickly and grew fast, it was unable to sustain its business. Icelandair cannot hope to compete for head-on in the peak season with the US majors.
It was painful but likely necessary to layoff those pilots at Icelandair. Don’t be surprised if the airline also defers MAX deliveries. It would also be a great idea for Icelandair to develop an alliance with Southwest Airlines to build O&D traffic out of BWI. Icelandair is going to need friends as the US big three eye their home market as ripe for the plucking.