WOWAir may become a virtual airline, while WizzAir steps up in the game?

Is an airline still an airline if it doesn’t fly airplanes?

That’s the question Iceland may soon be asking if Indigo Partners gets clever about its recently announced plan to buy a stake in WOW Airlines. Indigo, the successful investor behind Frontier, WizzAir, Volaris and previously Spirit Airlines, has offered a financial lifeline to the Icelandic low-cost carrier, which remains at-risk of rapidly depleting its cash following Icelandair’s departure from the acquisition table.

On a virtual WOW, unsuspecting passengers would board a Frontier-operated plane from, say, Trenton to Reykjavik, then connect to a Wizz-operated plane from there to Europe — all under the guise of a WOW ticket. To meet its flying obligations, WOW would contract as much lift from Frontier and Wizz as Icelandic regulators permit. Additional back-office functions could be consolidated into Wizz, Frontier or both.

Following this virtual airline model would allow Indigo and WOW to take advantage of lower cost labour in Hungary and the U.S., compared to import-island Iceland.

By most measures, Wizz Air has one of the lowest unit costs of any airline in Europe, essentially matching that of the world’s largest ultra-low-cost carrier, Ryanair. According to data filed with the U.S. Department of Transportation, Frontier’s costs are even lower than Wizz’s. Together, a Frontier-Wizz combo could potentially operate a flight for less than WOW, and for significantly less than rival Icelandair.

Additionally, the virtual airline would give WOW flexibility to manage the ups and downs of passenger demand. The transatlantic market is highly seasonal, with summer passenger traffic in most years over double that flown in the winter. A low-cost carrier, which lacks more consistent and higher-paying business travellers, is especially exposed to this fluctuation. But as a virtual airline, WOW could publish a lighter schedule in the winter without bearing the burden of year-round aircraft leases. Aircraft in the Frontier and Wizz fleets, meanwhile, could be deployed on north-south leisure routes in North America and Europe during the winter.

The more appropriate example of a virtual airline is the now-ubiquitous codeshare flights sold by members of the OneWorld, Star and Skyteam alliances, as well as other bilateral partnerships. Roughly 320,000 passengers buy a ticket on one airline’s flight number, only to board a flight operated by another every day, according to data from IATA. In most cases, these marketing associations benefit customers by streamlining connections and offering schedule choices with frequent flyer benefits, if perhaps at the expense of fiercer competition.

To be fair, the major alliances take steps to harmonize minimum product standards among their member airlines. They set rules about which passengers can have lounge access, upgrades and the like. They try to overcome the inevitable confusion about where to check in and how to find your real reservation number online. But they cannot overcome the reality of selling a customer a Honda and giving them a Ford. Despite the real benefits of alliances, modern airlines have designed their own commoditization. In the process, they have taught customers to shop by fare and schedule alone – placing the names of airlines chosen on the priority back burner.

If there is one place where this brand confusion is not a problem, however, it is on the ultra-low-cost carriers. The promise of the ULCCs is all about the fare after all. Frontier sells “low fares done right” at the top of the page. WOW boasts “how low can we go.” Wizz Air sings about the “opportunity” opened up by cheap tickets. The clarity with which Indigo Partners’ airlines — and other ULCCs like Ryanair — approach their mission is one of their greatest strategic advantages. It is also the reason why a virtual WOW will not disappoint its customers.

Indigo could reinvent Icelandic aviation. By using its other companies to deliver WOW’s product, Indigo could bring ultra-low costs to a country with the second highest cost of living in the world (just behind Switzerland). Meanwhile, it’s clear that flags once commonly identifying “national” airlines are fading a little faster.

Source: Forbes