3. 1. OVERVIEW
WOW air was founded in November 2011 by Skuli Mogensen and took its first flight in May
2012 to Paris, France. Mogensen’s entrepreneurial background is mainly in technology and
telecoms, and he owns 100% of WOW air with zero debt. He was awarded Businessman of the
Year in 2013 and still sits on many technology companies’ Board of Directors. WOW air
currently has 250 employees ranging from those working in operations to those in customer
relations. As for their passengers, last December the airline reached it’s one-millionth passenger
and expects that another 800,000 will fly with the airline in 2015 (WOW air, 2015). On the
website, WOW air makes many promises to customers such as: lower prices, being on time,
newer planes, and having the brightest smiles (WOW air, 2015).
WOW air currently offers flights to Iceland from various European countries. Their most recent
addition is their low cost flights from Pearson International and Pierre Elliot Trudeau
International to various cities within Europe. WOW air flies Airbus A321s, the largest of the
Airbus A320 aircraft family, and their fuel efficient engines allow for the lower cost airfare.
WOW air introduces a further discounted rate than its competitors. Their service introduces an
alternative to the market, allowing for more price competition and greater options for consumers.
Each passenger travelling with WOW air can bring on one carry-on luggage up to a certain
weight. Extra accommodations may be purchased such as meals and beverages similar to the
larger airlines such as WestJet and Air Canada.
As a pretest for the movement into the Canadian market, WOW air launched flights from Boston
and Washington to various European destinations. The results from this endeavour were
extremely successful with each flight having at least 90% of seats sold. After successful
integration into the United States, it is predicted to succeed in the Canadian market.
1.1. Mission Statement
“WOW air is committed to providing the cheapest flights to and from Iceland, but doing so with
a smile and providing a memorable service all the way” (WOW air, 2015).
4. 2. SITUATIONAL ANALYSIS
2.1. SWOT Analysis
STRENGTHS
● Cheapest rate from Canada to Europe
● Operating a fleet of 6 Airbus A321s:
more environmentally-friendly with less
fuel consumption, resulting in lower cost
airfare
● Specialized accompaniment for minors
● Taxes are included in the price
● Itinerary development: website offers,
suggestions for activities in the specified
destination
● Successful Media Campaign: using the
hashtag #WowMoment where WOW
encourages passengers to share their
images of their trip
● Successful flight launch in Boston and
Washington demonstrating the need for
WOW air in North America
WEAKNESS
● Limited brand loyalty and credibility in
Canada
● Additional fees for onboard services such
as meals and beverages
● Passengers must be flexible with their
booking in order to receive a discounted
rate
● Baggage fees for carry on and checked
luggage:
○ Check-in Luggage
■ 1 bag (20kg)= $48
■ 2 bags (20kg) = $96
■ 3 bag (20kg) = $144
● No direct flight to European destinations:
travellers must take a connecting flight
through Iceland and then continue to their
European destination
● No Smartphone App for passengers to
access flight itinerary
1.
OPPORTUNITIES
● Potential for market development
● Greater possibility for expansion
globally
● European flight destinations are in high
demand for Canadians
● Service gap: Customers are dissatisfied
with the current high cost of air travel
● Tourism in Iceland has increased and
become a popular destination spot
● Potential to join a rewards points system
such as STAR Alliance
THREATS
● Easy entry to market
● Other airlines currently offer discounted
trips from Canada to Europe
● Changing technologies can render WOW
air’s fuel efficient aircraft as obsolete
● Economic changes affecting fuel prices
may force WOW air to increase rates
● Unforeseen environmental conditions can
affect their promise of punctuality
● Currency fluctuations: the fluctuation of the
Canadian dollar
○ Recession: changing economic state
of Canada and abroad
3.
5. 2.2. PEST Analysis
POLITICAL
● Legislation or taxation changes can
affect the business, either positively or
negatively
● Political conflicts in European
countries may discourage potential
travellers
● Heightened security at airports could
increase costs
● International tax rates vary
● Travelling restrictions due to outbreak
of disease
● Exchange control
ECONOMIC
● Increase in price of fuel and energy:
resulting in more expensive ticket
fares
● Economic state of participating
countries
● Real income of citizens: how much
disposable income citizens have to
spend on air travel
SOCIAL
● Recent bombings and terrorist threats
in Europe may prevent customers from
travelling
● Iceland is a popular destination rich in
culture
● The Green Consumer: rising
consciousness of the environmental
impact of air travel
● Uncertainty avoidance: hesitancy to
trust a new airline: customers may
trust a more reputable North American
brand such as WestJet
● Perceived psychological risk: budget
airline may hinder social image
TECHNOLOGICAL
● Perceived physiological risk:
consumers who fear product failures
● Airline industry is a huge pollutant of
CO2 emissions
● Use of smartphone technology
contributes to more efficient
purchasing of flights
● Further develop communication
systems in North America
6. 3. MARKET OVERVIEW
3.1. Segmentation
In order to segment the air travel market, we have used a combination of demographic,
psychographic, and behavioural segmentations. With these three techniques being used together,
each segment creates an accurate and descriptive picture of a portion of the market. The most
prominent segments are: Business Travellers, Retired Vacationers, Families, and Student
Travellers.
Segment 1: Business Travellers
● Age: mid 30s-late 60s
● Individuals travelling alone for a short period of time
● Short turn around time - within a few days
● Minimal baggage
● Not price sensitive
● Self-concept: high class traveller
● Lifestyle: busy, with a well established career
Segment 2: Retired Vacationers
● Age: 65+
● Retired citizens
● Typically vacations in the off-season to save money
● Looking for comfort in their travels
● Willing to spend but focused on quality over price
● Brand loyalty: loyal to familiar brands
Segment 3: Young Families
● Age: parents 30+, children 0-12 years old
● On average travelling with 2 adults, 2 children
● Budget-conscious
● Large quantity of baggage
● Prefer on-flight entertainment for children
● Minimal disposable income
Segment 4: Student Travellers
● Age: early-late 20s
● Recent university or college graduates looking to travel on a budget
● Will sacrifice comfort and convenience for a lower cost
● Minimal disposable income
● Focused on fulfilling self-values through low cost travel
7. 3.2. Targeting
WOW air plans to focus its resources on the segment labelled “Student Travellers” in the North
American market. In order for WOW air to make a successful entry and growth in the market its
resources must be focused on a profitable group that will build a critical mass of users. Since the
focus will be on a specific market segmentation with similar reactions and needs, a market
penetration strategy will be implemented. Targeting this group of consumers will establish a
sustainable competitive advantage by improving air travel for customers through having
customer excellence, locational excellence and service excellence.
3.3. Positioning
To the money-conscious student traveller, WOW air is air travel on a budget - providing a low
cost option to experience adventures, to see the world, and to discover new cultures all in a travel
package that fits your needs.
4. SERVICE OFFERING
Our service will compete alongside WestJet, the alternative low cost flight provider. The first
planned offering is low cost flights to various cities in Europe from Toronto and Montreal for as
low as $149. This offering will be the very basic package with each additional add-on being an
extra cost. Customers can pick and choose the add-ons that they wish to purchase to best suit
their needs. The service will offer the lowest cost flight for the simple traveller that wishes to
have a high quality experience at a low cost price. (See section 7.1 for more information).
5. CHANNEL DISTRIBUTION
The distribution channel strategy in effect for WOW air is a multichannel distribution. This
combination of direct and indirect distribution allows WOW air to reach a broad range of
consumers more effectively.
Using a multichannel distribution system, WOW air is better able to reach the goal of
obtaining a greater market share and increase brand recognition. WOW air’s main distribution
channel is the website, www.air.co.uk. This website is the more profitable option for the
company and provides the consumer with a greater wealth of information when purchasing
flights. The information is clear, straightforward, mobile-friendly and has no hidden fees. This
direct method allows consumers to purchase flights and includes Tours, Hotels and Car Rental
options to add to the passenger’s itinerary at the time of check out.
8. The second direct channel is WOW air’s customer service call center. To speak with a
customer service agent customers may call WOW air’s Head Office Monday: Friday 8am-8pm
GMT at Tel-(354):590-3000. Alternatively, customers may type a message in the Customer
Service section on the WOW air website. A customer service agent may help with booking
flights, changing itineraries, or other concerns. A customer service representative will respond
within 24 hours. Customer Service agents represent a prominent part of the distribution channel.
Another element to the channel distribution structure is the intermediaries, which include
travel agents. Travel Agents help to facilitate the purchase of flights and are helpful to those who
are unfamiliar or uncomfortable with purchasing flights online. Travel agents know the travel
industry and are knowledgeable about inexpensive options and managing a traveller's flight
requests. The use of travel agents in Canada will help to reach a wider audience and encourage
those who may be unfamiliar with the brand. They are important when consumers are seeking
help with flight purchases, to feel reassured, and speak to an expert in the field.
Other indirect channel members include online retailers such as Expedia, RedTag,
SkyScanner, and Kayak. This form of purchasing air travel does not give a customer a personal
experience, rather they provide an outline of the lowest prices comparable to other airlines.
Listing Wow air’s flights on these additional sites is beneficial for spreading awareness as one of
the most inexpensive airlines. Through these online retailers customers are able to sort based on
cost, from lowest to highest. With the business model of WOW air being to offer the lowest cost
flights, this would put them at the top of the page attracting more customers and generating a
greater brand awareness. Through the WOW air website, customer service call centers, travel
agents, and other online retailers, WOW air has a greater chance of becoming a well-known cost
effective airline. The distribution intensity level for WOW air is intensive as they have their
service on multiple platforms to provide potential customers with outlets to purchase flights.
6. MARKETING OBJECTIVES & STRATEGY
6.1. Marketing Objectives
● Achieve a net income of $60 million within the first 5 years
● Build recognition and brand awareness in North America
● Increase Facebook likes from 73,260 to 250,000 in the next 5 years.
● Build partnerships and strategic alliances with at least 10 other Canadian companies
(hotel, travel, transportation) within the first 5 years
● Expand North American market share to 10% by 2020
● December 2014 WOW flew its one millionth passenger. It is estimated that 800,000
passengers will fly with WOW air in 2015 (WOW air, 2015). By 2020, WOW plans to
fly 300,000 passengers from Canada to Europe. (See Financials for more information)
9. 6.2. Strategy
WOW air plans to target Generation Y for its launch into the Canadian marketplace. As
travelling becomes increasingly trendy for the younger demographic, WOW air will be offering
the lowest possible price from Toronto to Europe with an innovative aircraft model. The growth
strategy of bringing an existing service into a new market will allow for market development. By
maintaining this focus, WOW air will create an international presence by establishing brand
loyalty with Canadians in hopes of expanding their market share.
WOW air began its movement into the North American market beginning with flights
from Boston and Washington during the summer months, acting as a pre-test method. These
flights were more than 90% full all summer, indicating the success of their pre-test and the
potential for success in Canada. With this information, the size of the Airbus321 aircraft, and the
preplanned eight flights per week from Canada it can be projected that WOW air should be able
to reach 300,000 passengers in four years, ultimately expanding their customer base (WOW air,
2015). Skuli Mogensen, CEO of WOW air has expressed his belief that a 30% market share
within the next five to ten years should be easily achievable (Young, 2014). He recently
modified his statement in order to make his belief more realistic, and WOW air will hopefully
achieve a transatlantic 10% market share by 2020. “Mogensen talks boldly of expanding Wow’s
transatlantic market share to 10% by 2020, an eight-fold increase in the airline’s 750,000 annual
passengers, more than half of which are on connecting flights” (Topham, 2015). With the
strategic partnerships WOW air will form in their move across the Atlantic, and the goal of an
increased social media presence, this should be an achievable objective. The expanded customer
base and increased brand awareness will ultimately lead to obtaining a greater market share.
WOW air currently has an established social media presence with 73,260 Facebook Likes
and 13.9k Instagram Followers. They have executed a successful social media campaign asking
travellers to use the hashtag #WowMoment to document their travel memories. WOW air also
introduced a competition for travellers to upload their travel photos with the understanding that if
the WOW air uses their images or video footage, travellers will be rewarded with a free ticket or
trip to Iceland. CEO Mogensen explains “We have received a tremendous amount of great
pictures, and often the best moments are by hobby photographers. Effectively, a true moment,
not an advertising moment. That’s worked very well for us” (Garcia, 2014). WOW air will use
this tactic to create awareness and excitement when the service is brought to North America in
May 2016. Bringing a similar form of promotion to North America would help to build WOW
air’s brand awareness, increase their social media followers, and create more recognition within
Canada. Using this method of communication, WOW air is effectively reaching its target
demographic: The young, budget-conscious travellers.
10. Wow air will reach out to various Canadian companies to establish partnerships. In order
to better serve the target market of students, WOW air will form alliances with student trip
companies such as S-Trip and Contiki. WOW air will offer these companies the stated
discounted rate of $149 per flight to Europe from Pearson International Airport and Pierre Elliot
Trudeau International Airport if they book trips within a stated time frame and with a certain
number of passengers. This relationship would benefit the travel companies by providing them
with inexpensive flights, saving money for their customers and would provide WOW air with
increased traffic and awareness. Similarly, WOW air will reach out to various credit card
companies and establish a reward program for every purchase with the credit card, again
providing a mutually beneficial relationship. Furthermore, WOW air will prepare to partner with
travel agents as this will promote future growth by being recommended by agencies.
7. MARKETING MIX
7.1. Product
The airline industry is a specialty or luxury service. Booking and purchasing air travel takes
consumers a considerable amount of time and research when comparing alternatives and finding
the right fit for the right price. WOW air’s entry into the Canadian market offers a low cost
option for consumers, and introducing greater price competition between airline companies.
Flights
● Toronto and Montreal flights to Iceland offer prices as low as $99 one way
● From Toronto and Montreal to various cities in Europe for as low as $149 one way
Plane
● WOW air operates the Airbus A321 for longer flights from North America to Europe
● Airbus A321 has advanced environmental technology, giving WOW air the lowest
emission average in Iceland
● Low operating costs: Fuel efficiency and lower maintenance cost
● A stretched fuselage, allowing a more luxurious experience by providing more legroom
and passenger seating
● Ports to recharge portable devices
By having lower fuel costs, eliminating onboard services such as meals, beverages and in-flight
entertainment, the company now has a competitive edge in the market. The competitive
advantage stems from the customer’s ability to customize their travel package and only paying
for what they will use. Due to the fuel capacity of the A321, connecting flights must refuel in
Reykjavik, Iceland, resulting in no direct flights.
11. Additional Offering
Using web technology, WOW air has the ability to offer its prospective customers a personalized
experience on their website by:
● Allowing them to choose their preferred seats by viewing the plane in a 2D image
● Providing information on the tours or excursions in multiple European cities, allowing for
their customers to experience all the city has to offer
● Partnering with a hotel, allowing for customers to rent a room in the destination city
● Partnering with a car rental, allowing for customers to rent a car in the destination city
The combination of these service offerings and the low cost nature of WOW air’s services sets it
apart from the competition and providing a distinct competitive advantage.
7.2. Price
CEO Skuli Mogensen has said “the $99 fare depends on the season, on the load, if you’re
flexible on departure dates and book in advance you should always be able to find cheap fares.
$99 or below $200 should always be available in any given week” (Marotte, 2015). In addition to
the baseline price of $99 for a one way flight to Iceland and $149 to Europe, WOW air will offer
add-ons that come at various costs such as carry-on luggage, checked baggage, or any other large
items or extra services. As the service grows and evolves in the North American market, WOW
air will offer bundle packages to keep cutting costs for its customers.
7.3. Place
● Indirect Retailers (Expedia, RedTag, SkyScanner, and Kayak): These indirect retailers
will be the primary method for reaching new consumers. These retailers are established in
North America and are the primary means of finding the best flight deals for travellers.
● Direct Sales: Direct customer contact through the WOW air website is the preferred
method of contact to communicate specific price breakdowns: however, during the initial
stages while WOW air is gaining customer loyalty and brand recognition, the direct sales
approach will not be as profitable as customers are still learning about the service.
These two distribution outlets will be the most popular for our target segment of ‘student
travellers’. There is the also the option to purchase through their call centre, a medium meant to
manage complaints and handle customer questions. (See Channel Distribution for more).
7.4. Promotion
● Internet/Social Media Presence: With WOW air’s target audience consisting of
millennials, this will prove to be a challenge for communication due to the overwhelming
exposure to advertisements. The most efficient and low cost method of communication
for this demographic would be through social media and internet efforts. Having a strong
12. presence and communication strategy through sites such as Facebook, Instagram, and
Twitter is essential for reaching our target demographic. The average millennial in
Canada spends 2.2 hours a day on their mobile devices (Harris, 2015).
● Strategic Alliances: As WOW air gains traction in the North American market it will
have to form alliances with other organizations that are in direct contact with millennials
in order to execute the communication strategy.
○ Universities/Colleges: Engage in communication activities on university and
college campuses in order to increase awareness of the service. Students are often
making travel arrangements and are looking for inexpensive flights to Europe.
WOW air’s primary objective is to gain brand recognition and this
communication strategy will aid in reaching that goal.
○ Student graduation trip companies (S-Trip/Contiki): Work with student travel
companies and provide them with flight information and packages for their trips.
This will encourage students to book with WOW air in the future during their own
travels.
○ Credit Card Companies: Similar to other airline companies in the North American
market, WOW air will look to establish a mutually beneficial relationship with a
credit card company. American Express is a potential alliance because of the
launch of Apple Pay for American Express card holders only. The introduction of
Apple Pay has the potential to spark a rise in the number of American Express
card holders and WOW air being associated with the credit card company will
increase their brand awareness and profitability in the North American markets.
○ Travel agents: Travel agents are less important for our target demographic but
would be a strategic alliance for future growth. Keeping in contact with travel
agents as a method of getting WOW air flight information to consumers so WOW
air could move into the retired vacationers demographic.
8. FINANCIAL ANALYSIS
8.1 Market Analysis
The Canadian airline industry is worth an estimated $27.7 billion as of 2014. With hundreds of
flights departing from Toronto and Montreal every day on route to Europe, combined with a
shorter travel distance to Iceland, this segment of transAtlantic flyers is especially valuable when
considering the Canadian market as a whole. Currently this market is dominated by a select few
major airlines, namely WestJet, Air Canada, Air Transat, Porter, and Sunwing. Due to the current
oligopoly in the air travel market, a price competitive entrant like WOW air has a high chance of
securing a portion of the market share. With current trends, more Canadians are seeking to travel
but with limited budgets, creating an environment where purchase decisions will be mostly price
based, creating a high demand for a discount airline.However, with high overhead costs and
13. wildly variable sales periods, an airline can lose a significant amount of money if operations are
not properly managed.
8.2. Sales Forecast
Currently WOW air is planning four flight from Toronto and four flights from Montreal per
week to Iceland, starting in May 2016. Many tickets for 2016 flights have already been
purchased, with an average ticket price of $429. Based on the seating capacity of the A321 and
on current demand, we forecast that there will typically be 188 passengers per flight. With 8
flights departing Canada every week for the remaining 8 months of 2016, it is forecasted that
WOW air will receive $20,646,912 in revenue from ticket sales next year. Based on this forecast,
a 12-month period would create revenue of $30,970,368.
($429 x 188 passengers x 8 flights per week x 4 weeks per month x 8 months)
8.3. Market Share Forecast
Based on the current number of competing flights and our 8 flights per week, we forecast that we
will obtain 1.53% of the current market share of transatlantic flights to Europe. By attracting
customers who can now afford to fly due to our low cost model, as well as introducing additional
flights, we forecast being able to secure a 2.89% market share by 2025.
(average number of competitors flights from Toronto to London: 56 per day: 56 x 7 days/ week x
4 weeks/ month x 8 months = 12,544)
(WOW air flights from Toronto to London: 4/ week x 4 weeks/ month x 8 months = 192) (192 is
1.53% of 12,544)
8.4. Profitability Analysis
Due to the unique nature of the airline industry, WOW air’s financial situation, and the stable
flight schedule in place, all costs are fixed, with negligible variability. There are however very
high fixed costs associated with operating commercial aircraft. The A321 consumes $14.88 of
fuel per nautical mile. A trip from Toronto to Iceland is 2341.8 nautical miles, thus costing
$34,845 in fuel per trip. For the 8 months of operations in 2016 this will amount to $8,920,320.
Airport fees, labour costs, and maintenance costs are all also fixed costs due to the fixed
schedule, all of which amount to $471,809. In total, all costs would amount to $9,392,129. To
break even WOW air must sell 188 tickets per plane at $390 per ticket. Based on our forecasts, it
is estimated WOW air will make a profit of $11,254,783 by the end of 2016.
14. A321 Costs for 2016
Fuel: $14.88/nm x 2341.8nm= $34,845 x 8 trips/week x 4 weeks/month x 8 months =$8,920,230
Airport fees:
- Arrival fee and baggage handling: $8.82/seat x 188 x 8 = $13,265
- Landing fee: $17.19/landing x 8 = $137.52
Labour fees:
- Pilot + Copilot: $91,332/year- 8 months = $91,332
- Stewardess x2: $30,000/year - 8 months= $40,000
Maintenance (for 8 months of flight time)
- Landing gear: $23,333
- Airframe: $46,600
- Engines: $257,142
Total Costs: $9,392,129
Income
$429/ticket x 188 passengers x 8 flights/week x 4 weeks/month x 8 months = $20,646,912
Profit: $20,646,912 - $9,392,129 = $11,254,783 (for 8 months of 2016)
Break even: $11,254,783 / 8 / 4 / 4 / 188 = $390
9. CONTINGENCY PLAN
As a relatively new airline looking to expand into Canada, there are potential catastrophic events
that could block their successful integration into the Canadian market. A preemptive contingency
plan can work to both prepare for and deal with such events. There are many risks involved in
setting up and operating an airline in a new country. Minor risks would involve airports having
severely limited terminal space: Major risks could be as extreme as a plane crash, potentially
crippling WOW air’s image. Such issues would ultimately result in a low adoption rate and
WOW air’s adoption into the Canadian market would be unsuccessful. Our contingency plan
involves a multistep strategic withdrawal from the Canadian market. The contingency plan
would go into effect if the profits from operating in Canada remain below the break-even point
for 24 months. Two flights per week will be cut, leaving the two most popular and profitable
flights to still continue. This would reduce operating costs since less fuel would be used per
passenger on board, as the planes would be more likely to be filled to capacity. The period of
reduced flights will be maintained and monitored for a maximum of one year, during which we
will reintroduce additional flights if there is an increase in demand. At the end of the 12-month
period, the decision will be made to either remain in the market or to withdraw completely.
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