Icelandic aviation: Icelandair vs WOW air
Iceland is the fastest growing trans-Atlantic market to the US in 2018 and the country as a whole will have another year of double digit airline seat growth this year. The two Icelandic airlines, Icelandair and the low cost WOW air, both offer Europe-North America connections via the Reykjavik hub. Their current focus on North American growth is helping to balance their network capacity between that region and Europe.
The two airlines are opening up new markets, both on a point-to-point basis and based on one-stop connections between Europe and North America. Among Icelandair's five new US destinations this summer is Kansas City's first non-stop trans Atlantic service. WOW air has added six US airports this summer, including the first European service to St Louis.
Icelandair Group is feeling the pinch after six years of relentless growth by WOW air. The Group is going through a period of transition, characterised by corporate restructuring (including the sale of its hotels division) and slower growth than in recent years (it is cutting capacity to Europe).
- Iceland's seat capacity is up by 13% in 2018; its five year CAGR is 21% pa. Icelandair and WOW air dominate this market, but Icelandair is losing share.
- Europe and North America dominate the route network from Iceland. Capacity to Europe has flattened, whereas North America continues rapid growth.
- Point-to-point overlap between Icelandair and WOW air is high, but overlap based on possible one-stop Europe-North America connections is lower.
Iceland seat capacity up 13% in 2018; five year CAGR 21% pa
The country's seat growth in 2018 is slowing relative to recent years. Iceland's five year compound average growth rate (between 2013 and 2018) is 21% pa, led by WOW air's 28% pa. Icelandair Group's five year CAGR is 11% pa, whereas other airlines have collectively grown at 29% pa.
Icelandair and WOW air together have 9.5 million seats out of 12.1 million total
Icelandair Group, the country's biggest operator, is growing at only 4% and will have 5.7 million seats. The fast growing LCC WOW air is expanding capacity at 28% in 2018, when it will have 3.8 million seats.
Other airlines are also growing rapidly, collectively increasing by 13.3% to 2.6 million seats this year.
Iceland: annual seat capacity, 2012 to 2018*
Icelandair is losing seat share
Data from OAG indicate that Icelandair Group (which also includes the regional airline Air Iceland Connect) will have a 47.1% share of all seats to/from Iceland in 2018 – less than half, for the first time. This has fallen from 51.4% in 2017 and 80.4% in 2012 (the year that WOW air launched).
WOW air's 2018 seat share is projected to be 31.3%, up from 27.6% in 2017. Other airlines have collectively increased their share to 21.6% in 2018, from 20.9% in 2017 and 15.4% in 2014.
Europe and North America dominate route network from Iceland
Iceland's airline schedules are dominated by international routes, which account for 96.9% of seats in the seasonal peak week of 30-Jul-2018.
International capacity is almost all on routes to Europe (59.5% of international seats) and North America (40.0%), together accounting for 99.5% of seats. The fastest growing of these two regions in terms of capacity to/from Iceland has been North America.
Iceland: international departing seats by region, week of 30-Jul-2018
Capacity to Europe has levelled off; Icelandair shrinks as WOW air keeps growing
Wizz Air is growing its capacity (mainly to/from Central Europe) by around two thirds, but remains small by comparison with the two Icelandic carriers. EasyJet's capacity is more focused on the winter schedule, in which it is currently expected to maintain seat numbers at similar levels to last winter.
Capacity to North America is growing rapidly, led by WOW air
Icelandair (48.9% share of seats in the week of 30-Jul-2018) and WOW air (38.5%) dominate Iceland-North America capacity. Delta has more than doubled capacity since 2013, but has cut seat numbers over the past two years. Air Canada entered in 2017 and American and United entered in 2018, but the two Icelandic carriers drive the market.
Seat numbers between Iceland and North America will grow by 28% year-on-year in the week of 30-Jul-2018, according to data from OAG. Previous CAPA analysis has shown that seat numbers from Iceland to the US are growing faster this year than for any other European country.
See related report: North Atlantic aviation: UK is largest, but others are growing fast
By contrast with its capacity cut to Europe, Icelandair is growing by 10% to North America, with new (low frequency) routes to San Francisco, Cleveland, Dallas/Fort Worth, Baltimore/Washington and Kansas City.
However, the Iceland-North America capacity growth is mainly driven by WOW air's 51% expansion. The LCC has new routes this summer to New York JFK, Cincinnati, St Louis, Dallas/Fort Worth, Cleveland and Detroit. These launches are partly offset by the withdrawal of WOW air's Miami service.
See related report: North Atlantic aviation market: LCCs grow market share
In the five years since late Jul-2013, weekly capacity to North America will be up almost threefold. Icelandair has more than doubled (an increase of 128%), and WOW air has grown by a factor of almost 11 times since the equivalent week of summer 2015 (it only launched routes to North America in Mar-2015).
In the week of 30-Jul-2018, Icelandair will have 43% of its seats in North America, compared with 31% in the equivalent week of 2013. WOW air will have 48% of its seats in North America, compared with 17% shortly after launching US routes in summer 2015.
Point-to-point overlap between Icelandair and WOW air is high
Based on analysis of data from OAG for the week of 30-Jul-2018, there is now considerable overlap between Icelandair and WOW air in terms of the destinations served from Reykjavik on a point-to-point basis.
Europe: nine overlapping routes
The chart below shows the seat capacity for each of Icelandair and WOW air from Reykjavik on routes to Europe for the week of 30-Jul-2018. From this, it can be seen that most of the nine overlapping routes are also the bigger routes by seat numbers, led by Copenhagen, Amsterdam, Paris CDG, Frankfurt, Stockholm and Dublin.
London Heathrow and Oslo Gardermoen are the biggest routes with no overlap (operated by Icelandair, but not by WOW air). Berlin Schoenefeld is the biggest route operated by WOW air, but not by Icelandair.
North America: 10 overlapping routes
On routes from Reykjavik to North America, as with Europe, most of the 10 overlapping routes are also the bigger routes, led by Boston, New York Newark, New York JFK, Chicago, San Francisco, Toronto and Baltimore/Washington.
Seattle-Tacoma and Washington Dulles are the biggest North American routes with no overlap (operated by Icelandair, but not by WOW air). Los Angeles is the biggest route operated by WOW air, but not by Icelandair.
748" height="322" />
Based on possible one-stop connections between Europe and North America, overlap is lower
Based on Icelandair's 24 destinations in Europe and 21 in North America, it can offer 504 one-stop airport pairs between the two continents (21 times 24), while WOW air can offer 270, (18 airports in Europe times 15 in North America).
This analysis does not take into account how well the two airlines' schedules facilitate connections, but it suggests that there is perhaps more scope for both airlines to operate from the same hub than implied by the initial analysis of point-to-point overlap.
Asia is the next battleground for Iceland's dynamic duo
WOW air CEO Skúli Mogensen has suggested that the airline could have 14-15 destinations in Asia, as part of an ambition to making Iceland a "Dubai in the north". He has also floated the idea of WOW air hubs outside Iceland.
In a further sign of its ambition, the LCC is known to be considering selling an equity stake to finance further expansion.
Icelandair Group appears to be feeling the competitive impact of WOW air's rapid growth. Its 2017 operating margin fell to 3.5% – from 9.2% in 2016 and 11.9% in 2015, when it had been one of Europe's most profitable airlines. Its 1Q2018 net loss grew to USD34.5 million from USD29.9 million a year earlier, suggesting that its return to better margins may take some time.
Nevertheless, Icelandair continues to plan further network expansion, not least in response to WOW air's growth. It will start a service to Duesseldorf (launched by WOW air in 2017) in the coming winter, and is reportedly considering launching a service to India in 2019.
The year 2018 will be a crucial year for Icelandair as it undergoes its restructuring. If that can be successfully negotiated, the Icelandic aviation market looks set to remain one of dynamic and entrepreneurial development.