Startup Icelandic air carrier makes a play in the tough, low-cost transatlantic market – CNBC

Startup low-fare Icelandic airline Play announced new transatlantic service out of a third U.S. airport, Stewart International in New Windsor, New York, to begin June 9. (Stewart lies about 65 miles north of New York City.)

Play, which launched last July with nonstops from Reykjavik, Iceland, to London’s Stansted Airport, is the latest low-fare airline to attempt to make heavily discounted service across the Atlantic work.

Play’s immediate Icelandic forebear, Wow Air, went bankrupt in 2019 after starting long-haul services to the U.S. West Coast and India. Denmark’s Primera Air faced a similar fate in 2018. Low-cost Norway-based competitor Norwegian, meanwhile, abandoned long-haul intercontinental operations in January 2021 in order to focus on European and Middle Eastern routes.

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Now, Play will debut flights from the U.S. to Reykjavik — and onward from there to 22 other European cities — on April 20 with flights from Baltimore/Washington International Airport, followed by Boston Logan starting May 11 using narrow-body Airbus A320neo and A321neo planes. The carrier is promoting the new connecting services to Europe with fares as low as $109 one-way. CNBC.com associate editor Kenneth Kiesnoski spoke with Play CEO Birgir Jonsson — formerly with Wow Air himself — on what it’s like to start an airline amid a pandemic and how Play plans to succeed where others have failed.

(Editor’s note: This interview has been condensed and edited for clarity.)

Kenneth Kiesnoski: Sustaining a low-fare service across the Atlantic has proven tricky, as the failures of airlines like Iceland’s own Wow Air show. How will Play succeed where others have stumbled?

Birgir Jonsson: Play and Wow are actually closely related, so to speak. Many on our key management team are ex-Wow employees, as are a lot of our flight crew. I myself was Wow’s CEO for a period.

So we know that story quite well. And, in fact, Wow was a great company and was doing really well operating the business model that we are [now] operating. It was only when Wow started operating wide-bodied jets like Airbus 330s and flying to the [U.S.] West Coast and basically doing the long-haul [and] low-cost thing — which is a hill that many good soldiers have fallen on many times.

KK: Not only Wow but Primera Air and even Norwegian, which has ceased flying long-haul routes.

BJ: Right. But [Play was] was founded with, or managed to raise, around $90 million and proceeded to execute a business model of creating a hub-and-spoke system connecting the U.S. to Europe with a stop in Iceland [mixed] with point-to-point traffic to and from Iceland. We launched the European side of the network-in June and ran that for six months until we launched commercial sales to the U.S.

The reason I think Play will work out better than Wow is simply that the company’s better funded, [whereas] Wow was owned by one guy. And, it was way too big, grew too fast and the foundation was just too weak. We are a listed company. All the governance things around that kind of venture are completely different, more disciplined, more focused. Also we now know the pitfalls. We are just going to focus on the proven concept, the market that we know that exists.

KK: The pandemic hit travel hard, but probably business travel hardest, as work and meetings migrated online. Since you’re low-cost, are you targeting leisure only or will you also court business flyers?

BJ: In a pure marketing sense, we are targeting the VFR [visiting friends and relatives] and leisure markets. Having said that, I always have a pretty difficult time defining what business travel is because when someone says “business travel,” most people think of someone flying business class, drinking champagne — some premium service.

But there are a lot of people traveling for reasons other than going on holiday or visiting friends. Going to conferences [or] training, for example — these kinds of things. It’s not only high-powered CEOs going to Davos, you know. We just want to offer a no-frills, very economical product that’s very simple to use. We don’t have a business class; it’s an all-economy product. But for anyone, be it a company or individual, that wants just a simple approach, a good ticket price and safe, timely service, we are the right choice.

KK: Would you say Play is ultra-low-cost, like Ryanair, Frontier or Spirit? How do you differ from flag carrier Icelandair apart from price?

BJ: In Ryanair’s case, they fly relatively shorter legs. If I’m going to fly to New York, it takes five hours. You need to be able to recline your seat and to be able to have some leg space and such. So we’re not going hardcore like that. If there’s a distinction between a low-cost and an ultra-low-cost product, I would say that we are some type of low-cost.

If you compare us to Icelandair, I would say the product is nearly identical. Okay, we don’t have a business class as such. But in terms of the general experience onboard, on both airlines you have to pay for your meals, drinks and luggage and all that stuff. Legacy airlines are transforming themselves into a low-cost products anyway. If I made a list of 10 things that would justify that, the first five on that list are “price.”

KK: How did Covid affect your launch plans? I know around 10 new carriers debuted last year during the pandemic. Did you slow things down and use the opportunity to fine-tune or something?

BJ: We started operations with the general view Covid would end in the next 12 to 18 months, and that seems to be happening. In order to start an airline, especially a transatlantic one, you need runway. You need to hire crew, you need to train them. You need to position yourself on the market.

We would always have needed some kind of a ramp-up period. So we have never been focused on financial performance in the first six to eight— or even 12 — months. The demand was more to build an airline, have everything working and basically be prepared for when the whole business model is realized, which will be in spring when we launch the U.S. [flights].

Would I have liked Covid to end sooner, or would I have liked more passengers? Of course. But we managed to get a 53% load factor and 100,000 passengers — in a country of 400,000 people, in the middle of Covid. We are extremely happy about that. We would have liked to have 80%, of course, yes. But this was acceptable.

KK: Low-cost carriers often serve secondary urban airports. But you’re flying into BWI and Boston Logan, so why Stewart for the New York metro market?

BJ: New York is one of the most competitive markets in the world. Our position is to win passengers with low fares. And you can offer low fares [only] if you have low costs. Stewart offers that, for sure. It’s a lean airport to use. You cannot be low-fare if you have the same cost base as everyone else; then you’re subsidizing tickets. And that’s basically what happened in Wow’s case.

The other side is that there’s also very little competition out of upstate New York; there are no international flights at the moment. [But] there are a lot of attractions and businesses, and real estate prices have been rocketing. It’s almost a completely different market than New York City. I’m completely in love with Stewart. Baltimore’s a similar story, because in Europe we don’t talk about Baltimore. We’d say, “Washington.” BWI is a fair way out of the city but there’s a customer there in Maryland.

KK: Like Icelandair, Play offers a free stopover stay in Reykjavik for passengers, which helps local tourism. But pre-Covid, there was pushback in many popular destinations about over-tourism. What’s your take?

BJ: [The stopover] is a tradition that has been built over decades and we, for sure, offer that. In terms of Icelandic tourism, it’s interesting. It’s becoming one of the biggest industries in Iceland, apart from fisheries. We have so much nature and so much to see. But visitors tend to gather around the same spots, whereas if you drove for 20 minutes you’d see the same thing — but you’re completely alone.

It’s a discussion that’s going on in all popular destinations. Locals can’t get a table at the restaurants and all that. But the fact is that we couldn’t sustain those high-quality restaurants, clubs and bars and such in Iceland if it weren’t for tourists. In that sense, Covid was a good thing — if you can call a pandemic a good thing. One day, everything just stopped. And you don’t really know what you have until you lose it.