Wow Copycat Play Airlines’ Shares Fall on First Day

Edward Russell

July 12th, 2021

There’s a strong sense of déjà vu in the skies over the North Atlantic. Icelandic startup Play Airlines debuted on the Nasdaq First North stock exchange on July 9 with an eye on picking up where Wow Air and Norwegian Air left off.

Play is a near carbon copy of defunct Wow: It will connect points in North America and Europe over a Reykjavík hub cheaply with new Airbus A321neo aircraft, with the key difference of doing it profitably this time. The near identical business plan is no fluke, Play was founded in part as a “restoration” of collapsed Wow in June 2019, just three months after its predecessor closed its doors. Play is led by a who’s who of former Wow leaders, including CEO Birgir Jónsson, who was deputy CEO of Wow, and Chief Operations Officer Arnar Már Magnússon, who was vice president of operations at Wow.

Play’s public offering was eight-times oversubscribed when shares went on sale on June 25, the airline said. However, in what is likely a more realistic market view of the startup, its share price fell 5 percent to 24.7 Icelandic krona ($0.20) during its first day of trading on July 9.

Successful long-haul low-cost service across the Atlantic has long been a dream of airline entrepreneurs. Before Norwegian, which shed its long-haul operations as part of a court-led restructuring in January, and Wow, there is a long list of failed attempts from Laker Airways in the 1970s to People Express in the 1980s. At issue is the need for consistently high load factors to turn a profit on cut-rate fares; something that is difficult outside of the peak summer travel season across the Atlantic. That does not mean entrepreneurs are not eager to keep trying, with Norwegian-clone startup Norse Atlantic Airways also hoping to crack the market.

Play , and Norse Atlantic, if it gets off the ground, face formidable competitors. Nearly every major transatlantic carrier, from Air France-KLM to United Airlines, have cut millions — in some cases billions — of dollars in expenses with an eye on emerging from the crisis leaner than before. Play’s prospectus argues that, despite these savings, competitors will face higher unit costs post-Covid due to lower capacity — setting up something of a cost battle in the coming years. Play targets a low 3.6 cent costs per available seat kilometer (CASK) excluding fuel by 2023.

The assumptions are not entirely off base. Historically, major carriers have retrenched after crises, leaving the door open to new entrants or smaller competitors to expand and scoop up marketshare. However, the influx of billions of dollars in state aid in both Europe and the U.S. means incumbents are defending their turf and not retrenching as they have in the past.

Play’s financial outlook is equally rosy. The startup anticipates only one annual loss of $15 million this year before turning a profit of at least $4 million from 2022. Revenues are forecast to grow from $25 million this year to $509 million by mid-decade.

And in addition to the European and North American heavyweights, Icelandair is ramping up service after its own Covid-19 hiatus. The airline has cut costs and resumed its fleet renewal program with Boeing 737 Max aircraft. It recently returned to Minneapolis-St. Paul and plans to resume service to Baltimore in April 2022.

Play began flights to London Stansted on June 24 and expanded to Tenerife by the end of the month. Alicante, Barcelona, Berlin, Copenhagen and Paris Charles de Gaulle are due to join its map in July. The airline has leased three A321neos from AerCap.

But Europe is only half the puzzle. North American flights are due to begin by April 2022 — though Play has yet to seek foreign air carrier permits from either the Canadian or U.S. governments. The airline has not disclosed what cities it could serve in the Americas; however, when Wow shut down in 2019 it flew to Baltimore/Washington, Boston, Detroit, Montreal, Newark and Toronto. Play’s Chief Network Officer Daníel Snæbjörnsson was vice president of network planning at Wow.

Play plans to expand its fleet to at least six A321neos by the time it begins North American operations.

Edward Russell

Financial Briefs

  • Indonesia’s long struggling flag carrier Garuda Indonesia continues to face a number of financial ills. In June, the airline defaulted on a $500 million sukuk, or a bond governed by Islamic finance principles, as total debt topped $4.5 billion. While the airline is exploring a court-led restructuring of its debt, Fitch Ratings said it is watching the resolution of the sukuk default closely due to a lack of precedent in the still relatively new asset class. The bonds’ Sharia requirements could make the resolution process “more complex,” said Fitch. The Indonesian government owns more than a 60 percent stake in Garuda, making it a key stakeholder in the sukuk and any additional debt restructuring.
  • When airlines were struggling during the worst crisis in the industry’s history they struck out to bankers and the capital markets for every possible source of liquidity they could find. For JetBlue Airways, that included tangible assets such as its gates and slots at busy airports as well as intangible assets like its brand. Those items were used as collateral for a $750 million term loan that closed in June 2020. Fast forward a year and rosy recovery forecasts for the U.S. market, JetBlue is confident enough to repay some of its pandemic debts. The airline repaid the $722 million outstanding under the term loan at the end of June — a small step towards deleveraging its balance sheet and giving it full control again over its brand.
  • But while U.S. airlines are repaying their pandemic debts, European carriers continue to bolster their balance sheets. The Lufthansa Group closed a €1 billion ($1.2 billion) unsecured bond issue last week. The debt is split into two €500 million tranches: one due in 2024 at an interest rate of 2 percent and the other due in 2029 at a rate of 3.5 percent. Proceeds will “further strengthen” the group’s liquidity position. Lufthansa had €10.6 billion in cash and cash equivalents at the end of March.
  • Turkish Airlines has closed a secured loan backed by four Boeing aircraft from Castlelake. Collateral for the debt includes three 737-8 and one 737-9 jets. Castlelake called it a “tailored solution” for the airline, which continues to renew its fleet amid the Covid-19 slowdown.
  • After a record two airline IPOs in U.S. markets this spring, Mexico’s Viva Aerobus is considering a third possible listing before the end of 2021, Bloomberg reports. The ultra low-cost carrier has engaged three banks to discuss a possible listing. Viva Aerobus is the third largest Mexican carrier behind Volaris and Aeromexico according to the three carriers traffic numbers for the first five months of 2021.

Edward Russell

Edward Russell

July 12th, 2021