LCC PLAY emerges as Icelandair undergoes a resurgence

Before COVID-19, Iceland had been one of Europe's most dynamic markets, characterised until 2018 by strong growth.

The national airline Icelandair grew at double digit rates, with a North Atlantic connecting strategy via its Reykjavik hub. WOW air entered in 2012 with a similar approach at low cost and grew even more rapidly. The point-to-point market also attracted other European LCCs.

However, fierce competition weighed on both Icelandic operators, who fell into losses before WOW air's overexpansion led to its bankruptcy in Mar-2019. Icelandair started restructuring, but then the COVID crisis struck.

Iceland has now reached 71% of seat capacity for the equivalent week of 2019, similar to the Europe average of 73%, but only 50% of 2018 capacity levels (i.e. before WOW's exit). The new airline entrant PLAY aims to fill WOW's low cost role, but that will take time.

Icelandair has grown its seat share, of a smaller market, since before the crisis and also returned to profit in 3Q2021 - both rare achievements among Europe's legacy airlines.

As the coronavirus crisis recedes and the recovery builds, competition is also likely to grow in Iceland.