Iceland rocked by demise of airline that fuelled boom
Wow Air helped turn tourism into Iceland’s biggest cash cow, fuelling a boom that dragged the nation out of its financial collapse more than a decade ago.
That all came to an end this week, when Wow was forced to cease operations after it was unable to find backers to cover its losses. Icelanders are now assessing the damages and the most dire forecasts predict a potential plunge of as much as 2.7% in GDP.
The crisis in 2008 resulted in a drop in GDP of more than three times that magnitude, but it would still be a terrible hit for an economy that’s already experiencing a sharp slowdown and is further threatened by restive trade unions.
“This will be a blow, especially over the next months,” said Kristofer Oliversson, owner of hotel chain Centerhotels. “It’s happening at a very bad time.”
The currency plunged as much as 1.4% on the news, prompting the central bank to intervene on the currency markets. Fuelled by spectacular nature and the popularity of television shows like Game of Thrones, tourism now accounts for 8.5% of the economy, employing 30,000 people.
Wow Air was founded by Skuli Mogensen, a former tech businessman, in 2011, just as the country was recovering from the collapse of its banks. By the end of last year, it had become a player to be reckoned with in the market for cheap flights between Europe and the US, while at the same time denting its most established local rival, Icelandair.
Like other failed European carriers, the company had been struggling amid pinched margins due to fluctuating fuel costs and over-capacity in the industry. Mr Mogensen tried but failed to save the airline, holding talks with potential rescuers, including Icelandair and US private equity firm Indigo Partners.
The grounding left thousands of passengers stranded, with other airlines such as Icelandair, EasyJet, Norwegian, and Wizz offering to help. The government also activated contingency plans and issued a statement seeking to offer reassurances about the consequences for the local economy.
A total of 1,100 Wow employees were dismissed — representing the biggest number of jobs lost in a single day in recent Icelandic history — and many more employees in the tourism sector are now expected to be out of work.
Stefan Broddi Gudjonsson, head of research at Arion bank, now says the Wow Air debacle could cause tourist numbers to drop by as much as 16%.
