How a tiny budget airline singlehandedly turned Iceland into America's favorite vacation spot

Courtesy of WOW Air

When Icelandic tech entrepreneur Skúli Mogensen founded the long-haul budget airline WOW air in 2011, its fleet included just three planes serving 12 destinations — at an unheard of price of $99 round-trip.

Five years later, the fleet has grown to 17 and the destinations to 32. The prices may have climbed slightly — the average flight is closer to $400, including baggage fees — but compared to most other long-haul flights, WOW air is still rock-bottom.

Small fleets, few destinations, low costs — ask Mogensen why he's bothered to stay so tiny, and he'll offer a simple reply: It works.

Despite its short life span, WOW air has managed to become one of the most talked-about airlines in the business. From its plum-toned planes to its ultra-low fares that make you wonder where the fees are hiding (mainly in the lack of amenities), the company has figured out how to earn adoration in one of the world's most hated industries and put Iceland's mythic beauty within reach.

A logistics business at heart

Since last year, WOW air has seen 125% growth year over year. It's on track to do $290 million in revenue in 2016 and half a billion dollars in 2017, Mogensen says. The company has been profitable for the last 21 months.

But surely, no airline could offer such a high-quality experience without the help of subsidies from their local government or a bit of number-fudging.

No, Mogensen says. It's all about efficiency.

Courtesy of WOW Air"We are a logistics business," he tells Business Insider. Passengers are the goods that need transporting from point A to point B, much in the way Amazon ships gardening equipment and Zara ships clothes — both companies Mogensen says he has looked to for inspiration.

Costs stay down because WOW air insists on focusing on what's important and trimming the fat on all else. Each time the company buys planes, for example, it buys new. Mogensen says this adds fuel efficiency over buying older, used planes.

The company also tries to maximize revenue through a "load-based strategy," rather than a price-based strategy. Instead of pricing tickets at an arbitrary cost relative to who buys and when — something the airline industry is notorious for — WOW tries to hit its profit margin for each flight by filling every seat at a lower price.

Demand is still greater at certain times of year, but WOW passengers can feel confident they didn't spend $200 more on their ticket than the person next to them just because they booked on a Tuesday instead of a Thursday. Mogensen says the approach has paid off: 90% of all WOW air flights are completely full.

Getting people to Iceland

Jam-packed flights to Iceland weren't the norm 50 years ago. Not even five.

For most of the 20th century, Iceland pretty much did its own thing. But as Zachary Crockett explained for Vox, the 2010 eruption of the volcano Eyjafjallajökull finally put Iceland on the map. Sensing an opening, the government launched a PR campaign painting the nation as the perfect place to see far-out fjords and sample its rich culture of music, dancing, and outdoor bathing.

Mogensen realized, however, that affordable options for visiting Iceland were few and far between. Aside from the low-cost airline Norwegian air, the only other local airline, Icelandair, ran (and still runs) well over $1,000 per flight. People couldn't enjoy Iceland because they didn't have a way to get there, Mogensen says.

So in 2011, a year after the eruption, he gave the world a low-cost solution.

Courtesy of WOW AirFor all the hubbub over WOW's low prices, a substantial chunk of revenue comes from add-ons. Nearly everyone who books a flight to Iceland through WOW also rented a car on the site, booked a hotel, or signed up for an Iceland-only activity, such as a Northern Lights tour or snow-mobiling in the mountains, Mogensen says.

For people who know nothing about the country, WOW air's online portal might be simply the easiest and most straightforward option. Mogensen says that's by design. His 20-year background in mobile communications has made him realize the best way to help people get what they want is to be where they are.

Growing by thinking small

Now that WOW air has generated some buzz, Mogensen says the company plans to grow by doing what it does best: thinking small.

"One thing I use a lot internally and that I hope shows up externally as well, is that it doesn't cost anything to smile," he says.

Courtesy of WOW AirWOW still struggles to keep up with the amenities of larger low-cost airlines, however. Unlike Jetblue, which offers free snacks, drinks, and Wifi, nothing on a WOW air flight is free except water. There is also no Wifi, even to purchase.

Those bells and whistles may come with time, but for now the company has chosen to focus on cutting costs across the board, for better or worse.

One big upside is that legacy airlines like Delta, American Airlines, and United may have the advantage of pure volume, but they lack the nimbleness that Mogensen has with WOW. They're so fraught with baggage — old technology, aging planes, underserved destinations — that consumers end up shouldering enormous costs just so the companies can stay in operation.

Meanwhile, WOW air is expanding without raising prices. Earlier this year it added LA and San Francisco to its list of American cities, flights you can still buy for $99 round-trip. Come Thanksgiving, the first WOW air flight will depart out of Newark. And early next year the company plans to set up shop in Miami.

Mogensen says he fights hard with his sales team not to raise prices through all this growth. 

The little guy might get bigger, but he won't soon forget what it was like to be small.

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