AUDIE CORNISH, HOST:
The Icelandic airline Wow Air made a dramatic announcement today - it was ceasing operations immediately. The move stranded passengers on both sides of the Atlantic; some had already checked in for flights and were waiting to board. Now, if you haven't heard of Wow Air, it's been around since 2011, it offered cheap transatlantic fares and flew a fleet of purple airplanes. Now it joins a growing list of small European airlines that have shut down. For more on what's going on, we're joined by Ethan Singer. He's an airline industry economist. He's with the firm Compass Lexecon. Welcome to the program.
ETHAN SINGER: Thank you.
CORNISH: So what's known about why Wow Air went under?
SINGER: Well, I think there were a number of reports over the last weeks and months that Wow was looking for a buyer and exploring other options in terms of their business model. So in that sense, I don't think it was a secret that they were in some trouble.
CORNISH: Was it something with the way the company was run? Or what is the sense of how they did business?
SINGER: So Wow Airlines was an airline that was flying narrow-body aircraft across the Atlantic. And what they were doing is they were putting a lot of seats on these aircraft, charging money for ancillary services - bags, meals, all of that - and they were connecting passengers through Iceland. Now, this business model of charging ancillary fees for extra services has worked well in the U.S. for carriers like Spirit and Frontier - both airlines that we've done some work for in the past - but across the Atlantic, on these longer flights, that may not have been what consumers were wanting or expecting.
CORNISH: And they're dealing with fuel prices.
SINGER: That's right. And their business model, where they were charging incredibly low fares, may not have been one where they were able to extract the revenue to cover those volatile fuel prices.
CORNISH: Wow Air is only the latest in a long line of small airlines to close. Is everyone facing the same kind of problem when it comes to the European market?
SINGER: You know, I'm not sure that they are. The European market is challenging because there's a large number of carriers competing there, and it's a market where each carrier really has to earn their market share by providing a product that consumers want. But, you know, many of the European carriers are well-capitalized or part of a larger airline group that has many more resources than Wow did.
CORNISH: You talked about Wow's approach in terms of smaller seats, less legroom, charging for things like a carry-on; but that's something we see at big airlines, too. So is this a sign that this is not working, this system, or can we expect to see this trend continue?
SINGER: So with the big airlines - the Deltas, the Uniteds of the world - they're able to charge different prices for different products on the same aircraft. So they have a first-class product that's much more expensive than a basic economy product, but that's all on the same aircraft. What's unique about Wow is that every seat was charged at these low prices with the ancillary fees.
CORNISH: Every seat was the cheap seat (laughter), and that didn't work.
SINGER: Every seat was the cheap seat, exactly.
CORNISH: We've talked about the European market; what about American budget airlines? What's different here?
SINGER: I think a number of things is different. One, the U.S. budget airlines, Spirit and Frontier, they're flying shorter routes - also, flying on routes with a lot of demand for consumers, so places where there's just a large number of consumers that want to travel from Point A to Point B - and their business models have proved to be wildly successful. So if you look at Spirit's profit margins of the last year, in 2018, I believe they were above industry average. So while that model has proven successful for Spirit, clearly they're doing something different than Wow.
CORNISH: Ethan Singer, economist with Compass Lexecon, an airline industry consulting firm. Thank you for speaking with us.
SINGER: Thank you.
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