Business

Monday 11 December 2017

Nordic warrior aiming to provide the WOW factor with cut-price transatlantic fares

Skuli Mogensen launched Iceland's WOW Air in 2012, stuffing a big chunk of his own fortune into the business

Skuli Morgensen of Wow air
Skuli Morgensen of Wow air
John Mulligan

John Mulligan

Skuli Mogensen first invaded Ireland last October with a plane that was full of his employees. Now he intends to return, offering cut-price fares to Boston and Washington DC from Dublin starting later this year. Those tickets will be priced from just €149 each way, including taxes.

"I had a wig, stockings and a mini-skirt, and did the serving on board. It got quite interesting," he says in his understated Nordic way of his visit to the capital.

The Icelandic businessman owns WOW Air - all of it - a low-cost carrier that launched its first flight in 2012.

The whirlwind trip to Dublin last year was for a staff party. WOW could fit all its employees on one of its 174-seater Airbus A320 aircraft for the trip - something Mogensen says it won't manage again as new hires join the airline.

In the space of just two years, WOW has launched routes around Europe.

It already flies between Reykjavik and a large number of cities including London, Copenhagen, Berlin and Amsterdam. Its service between Dublin and Reykjavik will start in June, with the transatlantic service starting from October.

"We carried 500,000 passengers last year," said Mogensen (46), who's relaxed, amiable and chatty in a near empty pizza joint in Dublin on a crisp afternoon. He's into "extreme skiing", triathlons and all that stuff that makes the rest of us feel totally physically inadequate. He wouldn't be out of place as a skiing extra in that old Kirk Douglas war flick, 'The Heroes of Telemark'. "This year we expect to carry 800,000 passengers and 1.2 million next year," he adds.

Obviously there must have been an extensive planning phase before WOW's first flight in May 2012: crunching numbers, negotiating with aircraft lease companies and airports, and all the rest of the things that can make opening any business - let alone a new airline - a pretty complicated process.

"No," says Mogensen with a grin. "The first business plan envisaged a much smaller operation. More like a summer charter business. The real decision to go all-in as a year-round scheduled operator happened subsequently.

"I wasn't the chief executive initially - I had hired a guy. As soon as I realised that this would take a lot more financial commitment, I knew I had to do it myself."

To date, that financial commitment has come entirely from Mogensen's own pockets. Reluctantly, he reveals that he has invested about $25m (€22m) of his fortune in WOW.

He's still one of Iceland's richest people - easier these days, perhaps, following the country's economic collapse. He's been heavily involved in the telecoms sector in the past, having sold a mobile email and instant messaging provider - Montreal-based Oz Communications - in 2008 to Nokia. Oz had raised over $71m in private equity backing before it was sold.

Mogensen's father was a doctor and his mother a chartered accountant.

"I was the philosophy drop-out and black sheep of the family," he says. He ditched university after two-and-a-half years, having set up a business while studying.

"It's enough to make it meaningful for me," he says of how much the $25m investment represents as a percentage of his overall wealth.

"I haven't done any other investments for the past two years and I've made it known that I'm not looking at any. This has become a significant investment for me."

He says he also realised that there was a "much greater opportunity" than anticipated and points out that the airline was profitable in the second half of 2014.

At the moment WOW operates four aircraft - the same type of Airbus A320 aircraft used by Aer Lingus on its short-haul routes. WOW will have six aircraft by this summer as it expands its services, adding two A321s to its fleet.

But how easy is it going to be to make the transatlantic service work?

WOW sweats its assets hard to keep unit costs down. Each of its aircraft spends about 18 hours a day in the air, while the aircraft are typically about 90pc full. It uses smaller aircraft because they're easier to fill and the metrics work out better - no point in flying a half-full large aircraft. That would lose money. The same number on a full, small aircraft, makes a profit. At least in theory.

On WOW planes, passengers also pay for everything - luggage in the hold, advance seat reservations, food, drink - indeed all the stuff they already pay for on many other similar airlines. On transatlantic flights there's also no in-flight entertainment.

"We don't cram our seats completely, so our A321 aircraft is configured for 200 seats, not 220. Our A320 aircraft has 174 seats, not the 180 that could be squeezed in," adds Mogensen as he gives the sales pitch.

There's another caveat too: Flyers who choose to travel with WOW across the Atlantic will have to while away a couple of hours en route in Reykjavik during a layover. That all but rules out time-sensitive passengers who'll be travelling on business, but could entice price-sensitive leisure passengers who don't mind stopping off for lunch just outside the Arctic Circle.

"Iceland as a hub is truly unique," says Mogensen. "It allows me to use narrow-body aircraft. They have fewer seats, are a lot less expensive to acquire and operate. I don't have the operational risk of having 350 seats."

In March, WOW will start flights between London Gatwick and Boston, and in June between Gatwick and Washington DC.

It will fly three times a week from Dublin to Boston and Baltimore Washington.

Not everyone will get one-way flights to the US from Dublin for €149, but even as fares creep up as a flight fills, WOW insists that passengers will be getting a better bargain than with Aer Lingus, or other carriers.

As of early this week, an adult return economy fare with Aer Lingus from Dublin to Boston, leaving on October 1 and returning on October 10 is priced at €557. That includes a checked-in bag.

"My hope is that we will see strong point to point traffic (between Dublin and Reykjavik) during the summer and autumn," says Mogensen.

One of the big looming questions for Mogensen will be how to drive additional growth at the airline. Having extra cash would allow it to expand more rapidly.

He says WOW has been approached by private equity and aviation groups interested in taking a stake in the business.

"Definitely at some point it would make a lot of sense," he says." I'm not really thinking about any kind of exit at this point. I'm simply having too much fun. I get a kick out of doing something everyone told me I couldn't do."

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