Less than a month ago, two major Icelandic budget airlines seemed poised to combine forces as Icelandair moved to take over the upstart WOW air. But now that plan is off.

Icelandair announced Thursday they were canceling their plan to purchase of WOW, with Icelandair President and CEO Bogi Nils Bogason saying in a statement simply that the acquisition of WOW air “will not go through.”

The airline had hoped to work out the buyout ahead of a shareholder's meeting on Friday. But that didn't come together in time.

“It was clear at the outset that it was an ambitious task to complete all the conditions of the share purchase agreement in this short period,” WOW air CEO Skuli Mogensen said in a statement.

WOW air grew at lightning speeds, connecting many U.S. cities through its hub at Reykjavik (KEF) and onward throughout Europe. In hindsight, it might have been too much, too fast.

Both airlines leave the door open to restarting merger talks down the line. But WOW would have to stay alive for that to happen, and that's no sure thing.

At the time the takeover was announced in early November, it looked like a lifeline for WOW. Like many budget airlines, the Icelandic low-cost carrier struggled with financial losses amid increasing fuel prices.

But its condition has only worsened in the weeks since the deal first materialized. WOW returned four of its leased planes this week, a sizable portion of its total fleet. A spokeswoman for the airline conceded to USA Today that its schedule “is currently under re-evaluation due to changes in WOW Air’s fleet.” The airline is supposed to start flights to India next month with flights to New Delhi (DEL).

And in an astonishing letter to shareholders this week, Mogensen, the company's CEO, painted a dire financial picture of his company. He faulted some negative press surrounding WOW's future, the collapse of fellow low-cost airline Primera Air and increasing fuel prices for hurting the airline's finances.

“I can ensure you that we are taking every step possible to ensure the continuous operation of WOW air,” Mogensen wrote, adding that he put in 5.5 million euro of his own money into the airline.

Ouch.

 

Our Analysis

Does this spell the end of WOW air?

It's tough to know for sure, but the airline is in a bind with few signs of improvement. A takeover from the more stable Icelandair would have helped, but now that's kaput.

At the risk of sounding alarmist, any travelers with flights booked on WOW air should begin considering alternatives. Look into refund policies or any trip insurance offered by the credit card used to book. Better safe than sorry, after all.

 

Bottom Line

This deal could have been WOW's saving grace after overplaying its ambitious growth with dozens of transatlantic flights at dirt cheap rates. For the sake of flyers with tickets booked on upcoming WOW air flights as well as the overall competition that helps bring down airfare as a whole, we hope they're able to reverse what's starting to look like a death spiral.