WOW's $99 Iceland flights (plus extras) challenge established airlines: Don Pittis

The founder of the new bargain basement airline WOW made his pile in Montreal. Now he's using his millions to challenge the established airlines. Don Pittis asks the man behind the airline how his new endeavour can survive.

Serial entrepreneur risks his personal fortune in a viciously competitive business

Discount airline WOW Air has unveiled a plan to fly from Montreal or Toronto to Iceland for $99 one way and travel to numerous destinations in Europe for $149. If it's not too good to be true, how can the airline survive? (WOW Air)

The bargain basement airline business is littered with failures. 

But that doesn't frighten WOW's Icelandic founder Skúli Mogensen, who started the airline with a personal fortune he made in Montreal. Mogensen says his business represents the future and it is the establishment airlines who should worry. 

That may depend on whether WOW, which will begin next May by offering flights priced as low as $149 from Toronto and Montreal to several European destinations and as low as $99 to Iceland, can survive in the niche no-frills market where every "extra" service has its price. 

Mogensen may be just now getting around to offering flights in Canada, but his connections to the country go back more than a decade.

When I asked him where the money came from to start the business his answer was, "Out of my own left pocket."

For seven years, Mogensen ran a telecom startup in Montreal called Oz Communications which he sold in 2008 to Nokia. 

"We did mobile communications software," says Mogensen. "We basically had the consumer version of Research in Motion. If you wanted to check on your AOL, Gmail, Hotmail or Yahoo Mail accounts, most likely you were using our software."

Mogensen's timing was impeccable, getting out just before Apple's iPhone and Google's Android began to dominate the market.

Buyer beware

The WOW airline founder could have retired on his fortune. Instead he poured the money into starting a brand new airline, which he insists will offer the lowest airfares available between Canada and Europe.

Anyone expecting to actually pay only $149 should operate under the "buyer beware" rules of any extraordinarily good offer. Mogensen was cagey even when I repeatedly asked exactly how many flights were available at those rock bottom prices. Nor would he say what the "standard" fare was, directing me to the airline's website.

"It's easy to operate at a low price," says Queen's marketing professor Ken Wong. "All you have to do is have low costs. And the easiest way to have low costs is to simply offer fewer services, or charge for more of the things that other airlines include."

Indeed that is the WOW model. The company's list of "optional fees and charges" goes on for pages. Five kilograms of luggage is included in the basic ticket price, but after that the charges mount. Three pieces of checked luggage, for instance, will set you back $250 for each leg of the flight.

However, as Mogensen says, his only way of competing is on price. If people scanning the internet for the lowest cost flights decide there are lower price options, his business simply won't survive.

And WOW has some real cost advantages. The company's brand new aircraft will be cheap to maintain. With a fuel stop in Iceland, the airline can fly smaller planes. That means WOW can bring relatively small loads of passengers from many North American cities and then redistribute those passengers into different aircraft depending on their European destinations.

Of course, as other airlines have found, that kind of co-ordination can cause delays as each departure depends on a series of separate arrivals. 

Internet advantage

Launched only in 2011, WOW has none of the legacy costs of established airlines. It has no pensions. It has no costly existing sales network. Instead, using his expertise in the online business, WOW will find its passengers exclusively through the internet and will be run entirely from Iceland.

But even with all those cost advantages, starting a new airline is never a slam-dunk. Ken Wong wishes the brave entrepreneur luck. 

"Anybody who takes success and tries to build upon it is a good thing for the economy," he says.

But Wong says WOW is not an airline that he would use. He hates the idea of paying extra for luggage. When heading off on a business trip, he's not interested in shopping on the internet for the cheapest flights. He prefers to fly direct rather than change planes. 

In fact he says the current craze for paying an extra charge for each additional option may not last. It has come and gone in other industries, such as the auto sector, to be replaced by full-service offerings.

"It's one thing to launch a new business. It's another to keep it up and running over the long term," says Wong.

Wong thinks airline services like WOW, if they survive, will remain a niche. He says, like him, most passengers will prefer to use established airlines. 

"But if you're talking about a university student hitchhiking across Europe for a summer, it could be just the product."

For Mogensen, that may be enough for now. Beating the big boys will come later. And he says low operating costs and his expertise in telecommunications and technology are what will make the difference.

"I have very little to add in the way of how to fly an aircraft from A to B," jokes Morgensen. "But the fact that the internet is now changing the game is why this is a great opportunity."

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Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.