As flyers become more price-sensitive and less loyal to established brands, upstart airlines like Wow Air have an opportunity to expand.
As the battle among European low-cost carriers has heated up, Icelandic upstart Wow Air has set its sights across the Atlantic, hoping to earn the trust of American flyers.
Wow Air founder and CEO Skúli Mogensen has worked to expand the long-haul airline’s routes across Europe and to underserved North American cities like Boston and Montreal since the company’s launch in 2011.
The airline also runs Icelandic travel agency Wow Travel, which sells cheap tours, car rentals and hotel stays through the company’s booking site.
Wow Air recently named outspoken former Spirit Airlines chief Ben Baldanza to its board of directors after his January departure from the U.S. low-cost leader. The addition brings an experienced hand to Wow Air’s efforts in North America, at a time when legacy carriers are experimenting with dicing up fares to move closer to a low-cost model for many routes.
Skift sat down in Berlin last week with Mogensen to discuss Wow Air’s push into North America, competition in Europe among low-cost carriers, and which amenities are most important to the low-cost flyer.
Skift: Wow Air has been expanding rapidly in the U.S. and Europe. How do you assess the company’s success so far?
Mogensen: We like to think we are pioneering the low-cost, long-haul model, and so far, so good. It’s been working extremely well for us. We just released our February numbers, we added 122 percent capacity year-over-year. We still managed to have 89 percent average load on every single flight. This is in the middle of the winter, which historically has been a very tough period. I think that’s a testimony to the fact that the model works, and what we are seeing is that we’re really stimulating the market.
When we come in to a new destination or a city, we are increasing the number of [air] travelers dramatically in that region. That is also very encouraging. It basically tells you that our competition is not at all always another airline. ‘Should we take our car and drive somewhere, or is the air price point now so cheap [that we can fly somewhere]?’
Skift: What is your take on the race to the bottom in terms of airfares? Is Wow Air always going to look to drive prices down, even as competitors may looking to charge more for base airfare?
Mogensen: I hear a lot of people in this space say they are constantly looking at ways to increase the price. I say we are constantly looking at ways to lower the price. I think that you should always work hard in trying to bring the prices down. Frankly, if we don’t, someone else will come and do it. It’s really all about staying alert or finding innovative ways to bring down cost, while still improving the experience.
Very often it’s about technology. How can you utilize technology to do the experience better? How can you utilize technology to service the customer better? How can you use technology to help you to complete your entire travel experience, book hotel, car, entertainment and everything else? Not because we are pushing offers to you, but because you see it as valuable.
Skift: As a brand, how does Wow Air try to differentiate itself against its more established low-cost competitors?
Mogensen: I would say there are two things we have focused on from day one. I think one of the reasons why some people were fed up with the low-cost model is that they really felt that everything was stripped away from them.
I think it’s all about being honest with the customers. You only pay for what you use. Okay? If you want bare-bones travel, you get the lowest price. We encourage it. If you want to bring on board your own food, please go ahead. People talk about in-flight entertainment. Sure. The reality is most people now have smartphones, iPads, they have a Netflix subscription and they download for free or within that subscription whatever movies they want to use.
When you really start educating the consumer to fly smarter, we say “Our market is smart travelers who feel comfortable booking themselves, take care of themselves, manage [travel] through an app or the internet.” As long as you’re not stuck with a surprise bill, you’re usually fine.
Skift: How do you make sure your flyer is educated on exactly what is included in your fare? It must be a challenge when each low-cost carrier has a different definition of what is standard.
Mogensen: I think we are working on improving this and I think we can still do a better job, but overall throughout the booking we clearly tell you what is included and what is not included. We try to be clear about the benefits with the various elements and the differences between what you are choosing.
One very important thing on our new 330s that we are getting now for Los Angeles and San Francisco is that the seat pitch is 33 inches. We actually have a better seat pitch than competitors. This is more important than, I think, in-flight entertainment or anything else.
Skift: Is the leisure or business traveler the main target for Wow Air in North America?
Mogensen: We see more and more business travelers, small-to-medium-sized companies, definitely where the owner’s still involved, who will direct also the business travel to the low-cost model.
For the leisure traveler we say, “Don’t spend on the airfare, spend on the experience.” We definitely see this trend. If you want to buy some extra leg room, go ahead. The total cost will still be a lot cheaper [than a legacy carrier]. The driving force that we are seeing is really price. Price rules.
Skift: What dynamics are making the U.S. air market a focus for Wow Air? How much do you expect to grow in the next few years?
Mogensen: We’re growing this year 127 percent year-over-year, which is a lot. I would expect to continue to grow very rapidly next year so. Yes, we will introduce new destinations in North America, primarily, so we see a lot of growth in North America. Also I expect, based on the numbers, load and bookings that we’re seeing now, to tighten up our network. Meaning we will increase frequency to the current destinations as well.
It’s actually been very interesting to see how quick and efficient [U.S.] legacy carriers have been in adopting the low cost model.
The truth is, it’s not complicated. What’s driving their behavior is profit. They see the margins of the low cost carriers, both in Europe and the U.S., you look at Spirit and Allegiant. They are by far the most profitable airlines in the U.S. by a wide margin.
One of the differentiators with Wow is that it’s a private business. It’s a private company so our goal motivator is not always profit. We can actually choose to grow our network instead of driving immediate profit.
Skift: Are you concerned that U.S. legacy carriers entering the low-cost market will push European carriers out of North America?
Mogensen: I think we’re taking a reasonable risk there, but why do we go ahead? Because I’ve seen enough evidence that the same logic applies. If I’m buying a ticket, medium haul or even a short haul versus long haul, the main concern is still price.
What’s interesting here, I don’t think we could have done what we’re doing now 10 years ago. Maybe not even five years ago. The game changer is the internet, obviously, and the information available on the internet, how you search and book the flights.
Frankly, brand loyalty is going down.
Skift: In your mind, is the obvious benefit of a direct flight an impediment to Americans trying the low-cost long haul format, which usually includes a stop in Iceland? What about bigger European carriers that also have a stop? I’m thinking Turkish Airlines or Aeroflot.
Mogensen: Honestly I am concerned, but data encouraged me in doing some things that we’re doing. Many people don’t realize there’s approximately 60 million annual passengers going back and forth [between the U.S. and Europe], and half of them need to do one or more stops to get to their families.
Already, there you have 30 million people. Most of the cities that we are looking at are what I call B2B cities. For example, there are no direct flights between Berlin and Boston, Washington, Toronto, Montreal, LA, so if you want to go from here to there you need to do a stop. Usually it will be Amsterdam, London, New York and then continue whatever. What really surprised me was how Turkish Airlines manages to fill these planes through a really inconvenient stop. Both from a cost point of view and a time point of view. We have a much more convenient stop in Iceland.
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Photo credit: WOW Air founder Skúli Mogensen. WOW Air