Budget airlines: Icelandair and Wow Air combine

‘It is important that flights to and from Iceland will remain frequent,’ said Icelandair’s chief executive

Competitive location: Reykjavik is the hub for Icelandair and Wow Air (Simon Calder)

Icelandair plans to buy its rival, Wow Air. Both airlines are based at Keflavik Airport near Reykjavik, and have competed ferociously for passengers between Europe and North America. They currently have 3.8 per cent of the total transatlantic market.

With rising oil prices and weak demand, both airlines have been seen as vulnerable. Icelandair’s share price has slumped by one-third over the past year, though it rose sharply on news of the deal.

Wow Air has been suffering financially, and the fact that its shareholders will get only 5.4 per cent of the value of the two airlines combined indicates its precarious situation.

Icelandair said the airlines will continue to operate under separate brands. Their combined market share on the transatlantic market is around 3.8 per cent.

“The acquisition creates opportunity for both companies to become even better prepared to provide international carriers with strong competition,” a statement said.

Bogi Nils Bogason, Icelandair Group’s chief executive, said: “There are many opportunities for synergies with the two companies.

“The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.”

Skúli Mogensen, the founder and chief executive of Wow Air, said: “I am thankful for the response we have received since our very first flight. We have created a strong team that has reached remarkable success and has been a pioneer in low-cost flights across the North Atlantic.”

Icelandair flies from Gatwick, Heathrow, Manchester and Glasgow to Reykjavik. Wow Air flies from Gatwick, Stansted and Edinburgh.

It is likely that schedules will be restructured to reduce direct competition, and fares may rise. But with players such as Norwegian offering a wide range of transatlantic flights, prices for the winter are likely to remain low.