Icelandair closed up more than 39 per cent today after the airline announced plans to buy fellow Icelandic carrier Wow Air.
The deal, which is subject to approval by Icelandair’s shareholders and the country’s competition authorities, will see Wow Air shareholders receive 5.4 per cent of Icelandair’s shares.
Icelandair said the companies will continue to operate as separate brands. The airlines, both of which are based at Keflavik Airport near Reykjavik, have a combined transatlantic market share of 3.8 per cent.
The acquisition follows a turbulent period for European airlines. Icelandair chief executive Bjorgolfur Johannsson stepped down in August after the company reduced its revenue projections by roughly half to $80-100m. Rising oil costs and increased competition have also impacted Wow Air, a no-frills budget airline that attracts customers through lower fares.
But Icelandair says the acquisition will allow both companies to provide stronger competition in the international airline market. The flag carrier’s share price increased by over 50 per cent after today’s announcement, before closing on a 39 per cent increase.
Bogi Nils Bogason, interim president and chief executive of Icelandair, said: “Wow air has in recent years built a strong brand and enjoyed great success in the company‘s markets to and from Iceland and across the Atlantic.
“There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals. The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.“
CEO and founder of Wow Air, Skuli Mogensen said: “We have created a strong team that has reached remarkable success and has been a pioneer in low cost flights across the North-Atlantic.
“A new chapter now starts where Wow air gets an opportunity to grow and prosper with a strong backer like Icelandair Group that will strengthen the foundations of the company and strengthen its international competitiveness even further.“
The merger follows the collapse of small European airlines Cobalt, Primera Air and SkyWork in October. Ryanair chief executive Michael O’Leary warned of a tough winter for the industry, saying he expects more airlines to go bust due to increased oil costs and excess capacity.
Icelandair said its shareholders will meet to vote on the deal in the near future.