REYKJAVIK (AFP, BLOOMBERG) - Iceland's budget carrier WOW Air said it had ceased operations and cancelled all flights on Thursday (March 28), potentially stranding thousands of passengers.
The collapse of the troubled airline, which transports more than a third of those travelling to Iceland, comes after buyout talks with rival Icelandair collapsed earlier this week.
"All WOW Air flights have been cancelled. Passengers are advised to check available flights with other airlines," the carrier said in a statement.
"Some airlines may offer flights at a reduced rate, so-called rescue fares, in light of the circumstances. Information on those airlines will be published, when it becomes available."
WOW Air, founded in 2011, exploited Iceland's location in the middle of the North Atlantic to offer a low-cost service between Europe and North America as well as tapping into a tourist boom to the volcanic island.
However it had flown into financial trouble in recent years due to heightened competition and rising fuel prices, and had been searching for an investor for months.
"We have run out of time and have unfortunately not been able to secure the funding of the company," Chairman Skuli Mogensen said in a letter to employees. "I will never be able to forgive myself for not taking action sooner."
Mogensen had been working furiously over the past months to save the airline he founded in 2011, holding talks with potential rescuers including larger rival Icelandair and US private equity firm Indigo Partners.
Wow said earlier Thursday it was in the "final stages" of raising new equity from a group of investors, telling passengers flights had been postponed until "documentation with all parties involved have been finalised."
On Monday WOW Air said it was in talks to restructure its debt with its creditors after Icelandair ended brief negotiations over buying a stake in the no-frills airline.
WOW Air was left needing US$42 million to save the company, according to the Frettabladid newspaper.
The privately-owned airline has undergone major restructuring after posting a pre-tax loss of almost US$42 million for the first nine months of 2018.
It has reduced its fleet from 20 to 11 aircraft, eliminating several destinations, including those to the US, and cutting 111 full-time jobs.
A report by a governmental work group has warned that a WOW Air bankruptcy would lead to a drop in Iceland's gross domestic product, a drop in the value of the krona and rising inflation.
Along with Icelandair, Wow has played a key role in Iceland's decade-long boom in tourism. The closely held airline carried 3.5 million passengers last year.
Its crisis has weakened the krona, triggering Cabinet meetings in Iceland, though the government had said it wouldn't use taxpayer money in a rescue.
Visitors to Iceland are set to drop this year for the first time in a decade, according to the operator at Keflavik International Airport.
Last week, Finance Minister Bjarni Benediktsson said the government is prepared to consider measures to bolster the industry.
The collapse takes the number of European airlines to fail since last summer to at least eight. Belgium's VLM announced its liquidation in August, when Switzerland's Skywork Airlines AG also ceased flights.
The German arm of Small Planet filed for insolvency in September, with Azur Air halting operations in the country, and Nordic leisure carrier Primera Air collapsed on Oct 1.
Most recently, Berlin-based leisure carrier Germania and UK regional airline Flybmi ceased operations last month.