WOW's $99 Iceland flights (plus extras) challenge established airlines: Don Pittis

The bargain basement airline business is littered with failures.

But that doesn't frightenWOW's Icelandic founder Skli Mogensen, who started the airline with a personal fortune he made in Montreal.Mogensensays his business represents the future and it is the establishment airlines who should worry.

That may depend on whetherWOW, which will begin next Mayby offering flights priced as low as $149 from Toronto and Montreal to several European destinationsand as low as $99 to Iceland, can survive in thenicheno-frills market where every "extra" service has itsprice.

• WOW air launches $99 flights from Canada to Iceland, $149 to Europe
• WestJetlaunches London flights from 6Canadian cities

Mogensenmay be just now getting around to offering flights in Canada, buthis connections to the country go back more than a decade.

When I asked him where the money came from to start the business his answer was, "Out of my own left pocket."

For seven years, Mogensen ran a telecom startup in Montreal called Oz Communications which he sold in 2008 to Nokia.

"We did mobile communications software," says Mogensen."We basically had the consumer version of Research in Motion. If you wanted to check on your AOL, Gmail, Hotmail or Yahoo Mail accounts, most likely you were using our software."

Mogensen's timing was impeccable, getting out just before Apple's iPhone and Google's Android began to dominatethe market.

Buyer beware

The WOW airline founder could have retired on his fortune. Instead he poured the money into starting a brand new airline, which he insists will offer the lowest airfares available between Canada and Europe.

Anyone expecting to actually pay only $149 should operate under the "buyer beware" rules of any extraordinarily good offer. Mogensenwas cagey evenwhen I repeatedlyasked exactly how many flights were available at those rock bottom prices. Nor would he say what the "standard" farewas, directing me to the airline's website.

"It's easy to operate at a low price," says Queen's marketing professorKen Wong. "All you have to do is have low costs. And the easiest way to have low costs is to simply offer fewer services, or charge for more of the things that other airlines include."

Indeed that is the WOW model. The company'slist of "optional fees and charges" goes on for pages. Five kilograms of luggage is included in the basic ticket price,but after that the charges mount. Three pieces of checked luggage, for instance, will set you back $250 for each leg of the flight.

However, asMogensensays, his only way of competing is on price.If people scanning the internet for the lowest cost flights decide there are lower price options, his business simply won't survive.

And WOW has some real cost advantages.The company'sbrand new aircraft will be cheap to maintain. With a fuel stopin Iceland, the airline can fly smaller planes. That means WOWcan bring relatively small loads of passengers from many North Americancities and then redistribute those passengers into different aircraft depending on their European destinations.

Of course, as other airlines have found, that kind of co-ordination can cause delays as each departure depends on a series of separate arrivals.

Internet advantage

Launched only in 2011, WOW has noneof the legacy costs of established airlines. It has no pensions. It has no costlyexisting sales network. Instead, using his expertise in the online business, WOW will find its passengers exclusively through the internet and will berun entirely from Iceland.

But even with all those cost advantages,starting a new airline is nevera slam-dunk.Ken Wong wishes the brave entrepreneur luck.

"Anybody who takes success and tries to build upon it is a good thing for the economy," he says.

But Wong says WOW is not anairline that he would use. He hates the idea ofpaying extra for luggage. When heading off on a business trip, he's not interested in shopping on the internet for the cheapest flights. He prefers to fly direct rather than change planes.

In fact he says the current craze for payingan extra charge for each additional optionmay not last. It has come and gone in other industries, such as the auto sector, to be replaced by full-service offerings.

"It's one thing to launch a new business. It's another to keep it up and running over the long term," says Wong.

Wong thinks airline services like WOW, if they survive, will remain a niche. He says, like him, most passengers will prefer to use established airlines.

"But if you're talking about a university student hitchhiking across Europe for a summer, it could be just the product."

For Mogensen,that may be enough for now. Beating the big boys will come later.And he says low operating costs and his expertise in telecommunications and technology arewhat will make the difference.

"I have very little to add in the way of how to fly an aircraft from A to B," jokes Morgensen. "But the fact that the internet is now changingthe game is why this is a great opportunity."

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