UNIDENTIFIED PERSON #1: NPR.
(SOUNDBITE OF MONTAGE)
AUDIE CORNISH: The Icelandic airline WOW Air made a dramatic announcement today - it was ceasing operations immediately.
GAYLE KING: Many WOW travelers were already at the airport when they learned their airline was no longer flying. Yikes.
UNIDENTIFIED REPORTER #1: This is not the wow passengers expected - chaos, panic and confusion.
UNIDENTIFIED PERSON #2: We're massively inconvenienced, man.
UNIDENTIFIED PERSON #3: OK, but you're not helping, bro. Shut up.
ALEXI HOROWITZ-GHAZI, HOST:
This is the sound of an airline collapsing. Earlier this year, on the morning of March 28, the independent Icelandic airline WOW went bust. Thousands of passengers found themselves stranded on both sides of the Atlantic. The social media frenzy that followed treated the whole thing as a kind of late-capitalist comedy of errors, to be filed alongside the Fyre Festival and other recent meltdowns.
CARDIFF GARCIA, HOST:
But for many people in Iceland, the airline's demise meant something a lot more serious because over the past decade, the tourism industry has become the country's economic lifeline, fueling Iceland's recovery from the 2008 financial collapse.
HOROWITZ-GHAZI: And WOW Air, one of the pillars of the tourism industry, had just crumbled a few weeks before the start of their peak season.
GARCIA: This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.
HOROWITZ-GHAZI: And I'm Alexi Horowitz-Ghazi, a producer with Planet Money. Over the next two shows, we bring you the surprising story of how Iceland turned a volcanic natural disaster into an economic engine, going from a historic financial bust to an epic boom in just a few short years by going all in on tourism.
GARCIA: So on today's episode, Alexi, you have brought us the story of Iceland from Iceland - and specifically the story of WOW Air and how this ultra-low-cost airline first soared, helping Iceland to pull itself out of financial ruin, and then later, how it crashed and then threatened to bring down Iceland's economy with it.
(SOUNDBITE OF SIGUR ROS SONG, "I GAER")
HOROWITZ-GHAZI: Iceland is a tiny island in the middle of the North Atlantic Ocean, 40,000 square miles of volcanic rock about the size of Kentucky. But it hasn't got Kentucky's verdant farming country or its coal deposits or its thick forests. Iceland's modern economy has been mainly supported by two things - fish and geothermal power.
GARCIA: But that changed in the mid-2000s when Iceland got into banking in a really big way - way too big, it turns out. When the financial crisis hit in 2008, Iceland's economy got crushed. The Icelandic currency tanked. Unemployment spiked. National debt went through the roof.
HOROWITZ-GHAZI: Then two years later, in 2010, the island literally blew up.
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UNIDENTIFIED REPORTER #2: Iceland's latest major volcanic eruption's been quite spectacular.
UNIDENTIFIED REPORTER #3: Ash clouds are billowing from a volcano in Iceland, and they've grounded flights in Britain, Ireland and across Scandinavia.
UNIDENTIFIED REPORTER #4: The volcano's creating rivers of lava more than five football fields long and sending smoke more than 2 miles high.
GARCIA: But what looked like the death knell for the Icelandic economy turned out to be a rebirth. See, media coverage had showed not just the awesome power of the volcano, but also the stunning natural beauty of the country. And as the volcanic activity died down, tourists started to book flights to visit the country - a lot of flights.
PALLI BORG: We felt like, OK, there's a new gold rush.
HOROWITZ-GHAZI: A new gold rush. Palli Borg is the former director of business development at WOW Air. He says the company, led by an entrepreneur named Skuli Mogensen, grabbed the chance to disrupt a market that had long been basically monopolized by Iceland Air.
BORG: The concept of WOW was basically to do it cheaply, to do it extremely efficiently. It was to do it with a lot of fun.
GARCIA: WOW started by offering aggressively cheap airfares to European customers and made money by charging fees for things like seating assignments, baggage and in-flight purchases. Then it started offering flights to and from the U.S., which created a trans-Atlantic network with Reykjavik as the hub.
BORG: We were getting aircraft as fast as we could get them. And then finally, when we got the license to fly to the United States in 2015, that's really when it kicked off.
HOROWITZ-GHAZI: This made for a potent tourism boom cocktail, along with a couple other key ingredients - a devalued currency, which made visiting cheaper, and the rise of Instagram, where countless thousands of selfies helped popularize the image of Iceland as a FOMO-worthy vacation destination.
GARCIA: The tourists were pouring in, many of them on WOW's signature purple planes. By 2015, tourism was the country's biggest export. And not long after that, tourism was also the country's biggest private employer. And yet, as of earlier this year, WOW was bankrupt. What went wrong?
KERRY TAN: If I needed to boil down the demise of WOW AIR real succinctly, it's that they grew too fast with unsustainable growth.
HOROWITZ-GHAZI: Kerry Tan is an economist at Loyola University Maryland. He says that ultra-low-cost airlines already operate on thin margins but that WOW's strategy of opening more and more routes and buying new planes each year while continuing to offer fares as low as $49 dollars one way from the U.S. to Europe eventually caught up with the company.
GARCIA: And the turning point may have come in 2016. That was when WOW took an expensive gamble on adding larger wide-body aircraft to their fleet in order to eventually offer connections to Asia. Former WOW executive Palli Borg says that decision, along with rising fuel costs, led the company into financial trouble.
BORG: The single biggest challenge is that we were underfunded, and we didn't have access to enough money when we needed it.
HOROWITZ-GHAZI: Things moved fast. Facing a liquidity crisis, WOW executives offered to sell the company to their main rival, Iceland Air. But that deal fell through. Finally, on the morning of March 28, 2019, after another failed buyout negotiation, WOW announced to the world that it would be shutting down. Palli Borg says that moment came as a surprise even to many within the company.
BORG: We turned in our operating license, like, 8 o'clock in the morning. Until about 7:30, I thought there was hope. We couldn't believe that it was happening, but we simply ran out of time. It was a really, really strange feeling because this group of people in WOW - we were just not used to not winning. We were lucky people. We were witness. We - that is how we - it still feels strange to say bankrupt because we just feel that it was stopped.
GARCIA: And while the rest of the world was freaking out about the few thousand stranded travelers that WOW now left in its wake, a lot of people in Iceland were worried about being cut off from the steady flow of tourists that the company had supplied.
HOROWITZ-GHAZI: People like Horter Bender (ph), who moved back home to Iceland in the wake of the banking collapse, spent the last few years building a tourism business and was suddenly faced with a wave of cancellations and an uncertain future. Horter was actually on the board of WOW for a few years early on, but he wasn't there when the company collapsed.
What do you remember thinking?
HORTER BENDER: Well, it was disappointment. It was, what's going to happen? You know, it was a bad time for Iceland.
GARCIA: Like the volcanic eruption that had triggered the tourism boom in the first place, WOW seemed to many to have blown up without warning. Unlike the volcano, it has since disappeared without so much as a puff of smoke. But it may have done far more damage than the volcano's plume of ash or lava streams.
HOROWITZ-GHAZI: Iceland became so dependent on tourism and on WOW that the demise of the airline has threatened the country's entire economy. On tomorrow's INDICATOR, we tell the story of how Iceland went all in on tourism, for better and for worse, and why WOW's collapse might actually be a good thing.
GARCIA: This episode of THE INDICATOR was produced by Darius Rafieyan, edited by Paddy Hirsch and fact-checked by Nadia Lewis. THE INDICATOR is a production of NPR.
(SOUNDBITE OF SONG, "NY BATTERI")
SIGUR ROS: (Singing in Icelandic).
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