In retrospect, it was probably not a fantastic idea to leave Iceland’s economic fortunes tethered to an airline called WOW. Before it collapsed in March, WOW Air delivered more than one-fourth of all international visitors to this ruggedly spectacular island nation. Its credulity-straining fares — $199 round trip from New York and San Francisco — were key elements of a tourism bonanza that lifted Iceland from its catastrophic 2008 financial crisis, the International New York Times reported.
Iceland is preparing for a deeper recession this year amid dropping tourism arrivals and a failed capelin season, central bank Governor Mar Gudmundsson said, Bloomberg News reported. “We are prepared for the possibility of a deeper recession, and the numbers we are getting on tourist arrivals seem to indicate that that may happen,” Gudmundsson said in an interview on the sidelines of a conference in Dubrovnik, Croatia.
Iceland is returning to global bond markets for the first time in more than 18 months, marking another step in its recovery after the 2008 crisis that bankrupted its biggest banks and depressed the economy, the Financial TImes reported. The Nordic island is aiming to raise €500m in a five-year euro-denominated bond, according to people familiar with its plans, similar to a bond sale of December 2017. Proceeds will be used to buy back €352m of outstanding bonds. Running a budget surplus, Iceland has no immediate need for the remaining money raised.
It’s not often that an entire economy is thrown off course by a single corporate event. But that’s what appears to have happened in Iceland. The recent bankruptcy of budget airline Wow Air has delivered such a blow to the Icelandic tourist industry, and the wider economy, that the central bank on Wednesday cut its main interest rate by half a point to 4%, Bloomberg News reported. It also said that the economy is now set to contract 0.4%, compared with a previous estimate for growth of 1.8%.
The collapse of budget airline WOW Air last month will dent Iceland’s economic growth this year and cause some losses in the banking system, the country’s central bank said in a Financial Stability report on Thursday. WOW Air, which had 1,000 employees, halted operations and canceled all future flights on March 28 after efforts to raise more funds had failed, Reuters reported. It was the latest budget airline to collapse as the European airline sector grapples with over-capacity and high fuel costs.
The chief executive of Iceland’s low-cost Wow Air, which collapsed on Thursday, has said his “fatal” mistake was trying to turn the airline into a global business, the Financial Times reported. Speaking to the Financial Times, Skuli Mogensen said Wow, which offered cheap flights between Europe and the US via Iceland, had started off with narrow-body planes, but “we wanted to use Iceland as a global hub connecting three continents” so the airline ordered expensive wide-bodied jets, which can fly further, in late 2016. Wow briefly flew a route between India and Iceland.