I recently spoke with Einar Örn Ólafsson, the new CEO of Iceland’s PLAY Airlines, its largest shareholder and chairman since April 2021, who took the reins just over a month ago. We discussed why he felt now was the right time to get more active in PLAY, what he sees as the prospects for Icelandic aviation growth, why the former Icelandic low-cost airline WOW failed, and the implications for airlines contending with aircraft shortages because of the Boeing crisis.
An Active Investor At PLAY
Ólafsson is the Board Chairman for waste-management firm Terra
Terra
He comes across as a down-to-earth and practical man with a keen sense of what works and what doesn’t in the risky airline industry. Ólafsson formally took over as CEO of PLAY on April 2, replacing CEO Birgir Jónsson, who had led the airline from its launch. However, Ólafsson was active in shaping PLAY from the beginning.
“I had been the chairman of the board from really the inception of the company, or at least since before we started flying. So, as such, I was pretty involved, and I knew a little bit what I was getting into,” he told me.
So why get more into PLAY now? “We were doing a round of financing earlier in the year where many of the shareholders that had been with us from the beginning participated, as well as some new ones. And I committed myself to more than 10% of the capital here. So I was getting more invested than I already had been.”
Ólafsson spearheaded the airline’s recent funding round, bringing in around $33 million from existing and new shareholders, including private and institutional investors.
“I was trying to convince people that I knew to invest in the company, and I felt that it was right towards myself and those people, I guess, to assume full responsibility for the path we’re taking and see this project through,” Ólafsson said.
Fire & Ice: Iceland Is Still A Hot Stopover
Ólafsson said Iceland remains a popular destination for U.S. travelers, with about as many travelers flying to the country as their ultimate destination as passengers using Iceland as a transatlantic connection.
“Iceland is attracting tourists,” he said. “Our stopover program is pretty new. We started it two months ago, and it is increasing in popularity. We think we will be grabbing a portion of the market that won’t consider other international airlines because they won’t offer this stop in Iceland. It’s a growing percentage of our via passengers, though it’s still not very big. Our local competitor here has claimed that 20% or 25% of their passengers do the stopover in Iceland. So they certainly are ahead of us there. It’s a number we are looking at.” At least a good part of those stopping in Iceland would never have considered this option without the stopover program, he told me. “We’re just enlarging the market by having this option,” Ólafsson said. “I think that’s for sure.”
Ólafsson told me US tourists have always represented a good portion of all tourists in Iceland, with the second largest market being the UK. “These are markets we want to tap into,” he said. He also noted the average US household’s relative wealth and higher disposable income favor travel to Iceland.
Lessons Learned From WOW’s Collapse
PLAY filled a gap for innovative low-cost service in Iceland, following the collapse of WOW. The defunct airline also aimed to capitalize on low-cost transatlantic travel while boosting tourism to Iceland. I asked Ólafsson whether PLAY had learned anything from WOW’s failure that might guide its progress.
“I think even the owner and CEO of WOW Air, Skúli Mogensen, has many times said that what he felt was the downfall of WOW was when he sort of overextended and overcomplicated the company,” he said. Ólafsson pinpoints the airline’s decision to add twin-aisle A330s and extend routes to the U.S. West Coast and India. “It didn’t really fit with the low-cost model. He had introduced big seats—I guess we can call it Premium Economy class—at the front of the aircraft.” While he believes the airline’s rapid growth and service complications brought about its downfall, he also notes that WOW may not have survived the COVID-19 pandemic. “But it was in many ways a good airline that overextended, I would say, overcomplicated things,” he concluded.
WOW’s failure is an abject lesson that Ólafsson is cautious not to repeat.
The Short-Term PLAY
Asked about plans for the airline over the next four or five years, Ólafsson said he intends for PLAY to approximately double in size to around 20 aircraft, while preserving the airline’s high aircraft utilization. “At least if we’re thinking of peak season in the summer,” he clarified. Some of the new aircraft may be seasonally leased planes. “Like in many places in the northern hemisphere, there’s a bit of a gap between the demand and summer and winter, so we have to manage that somehow,” Ólafsson said.
Ólafsson’s growth plan is to preserve what works best in the airline’s low-cost model. The airline will continue using Keflavik as a hub and fly to North America, Canada, the U.S., and Europe.
“Now it’s mostly the East Coast. So it’s about a five-hour flight from Iceland and then back. We can fly to the U.S. and Europe and back within the 24-hour day. That way, we have great utilization of the aircraft. Now that we have ten aircraft, we fly five of them over to America every day.” The remaining five aircraft serve European routes.
When the fleet doubles, Ólafsson plans to maintain that split, with ten planes flying to America and the other ten to Europe, targeting leisure destinations in southern Europe or bigger cities like London and Paris. “We’re always looking at ways to improve our business,” he said. “So, we can’t rule out that we will do things slightly differently—place aircraft outside of Iceland or make some modifications to that main plan.”
Where Next For PLAY In The U.S.?
Ólafsson hesitated to elaborate on future North American destinations so as not to alert his competitors, but he did share some details.
“Ideally, we find more cities within this 5-hour time window because if we fly further out, then we have to place the aircraft there overnight,” he said. Ólafsson would like to gain entry airports the airline hasn’t been able to access. “I can mention other airports in New York other than Stewart. Montreal has been more or less closed to us.” But, again, he wants to focus on optimal aircraft utilization, which limits the range of destinations the airline might entertain.
“There’s approximately a line between Washington DC and, let’s say, Minneapolis,” he said. “To the northeast of that line—all the airports there—we can fly to within this timeframe.” Some wish-list destinations include Minneapolis, Chicago, and Portland, Maine. “Eventually, we will venture out of that window, particularly when we get past 15 or 16 aircraft. Then, we will have a second aircraft connecting back. That will make life easier for us in terms of flying a little bit further afield.”
The PLAY Brand Relies On Its People
Ólafsson said his plan for flexible capacity to bridge the gap to growth could include wet-leasing some aircraft. However, he assured me he would preserve one of the brand’s critical assets: its cabin crew. The airline has won awards for its friendly crew, and that’s something that Ólafsson values.
“Some low-cost airlines, to be honest, have almost prided themselves on being kind of unpleasant,” he said. “And we don’t see any benefit in that. We don’t see any even cost savings in being unpleasant. Quite to the contrary, we think that sales on board are better when our crew is as friendly and when they’re taking the carts down the aisle more often. In general, we think that people will like us better. They will fly with us again if the crew is friendly. They will buy more food and beverages when the crew is nice and people feel comfortable.”
The airline earns an average of $50 ancillary revenue per passenger. Ólafsson wants to ensure happy passengers keep buying. To maintain the brand’s reputation for service, Ólafsson told me the airline would have its cabin crew onboard any wet-leased aircraft, at least some portion of the staff who could uphold the service standard. However, the airline would contract wet-leased aircraft with the operator’s flight crew.
Managing Growth For Robust Financials
PLAY has multiplied over the past three years, going from no aircraft to three, then six. The airline added its 10th plane to the fleet a year ago. Ólafsson said this year is a ”breather” to get the house in order. He plans to operate ten aircraft for two years before restarting growth plans.
“When you’re building things really fast, some compromises are made in terms of cost and even in service to some extent,” he said. We’re trying to get all that into the best possible shape, which will result in some cost savings with better service, happier customers, and increased revenue. We’re flying to more or less the same locations as last year.” He expects to start growing again next year on firmer financial footing.
During the first quarter of this year, PLAY Airlines’ revenues increased by 66% compared to last year, from $33 million to $54 million, with a capacity increase of 63%. The airline reported 349,000 passengers in the first quarter, a 64% increase over the first quarter of 2023. Its load factor increased from 78.4% last year to 81.8%.
Earnings before interest and taxes for the first quarter were -$20.4 million, which the airline attributed to the impact of news coverage of seismic activities in the Reykjanes Peninsula. Total revenue per available seat kilometer was $0.042. The cost per available seat kilometer was $0.059, 8% lower than last year, largely due to favorable exchange rates that reduced the cost of fuel. However, the airline also reduced its operating expenses, excluding fuel, by 4.2% to $0.043. At the end of Q1, PLAY held $17.1 million in cash before raising $32 million through its share capital increase.
“We have been burning through our equity, investing in the company, building the house,” Ólafsson said. “This year, we plan to have our EBIT run toward zero. There will be some finance costs, but the losses for the company and the amount of cash will be minimal this year and then neutral or positive next year. That’s the plan. And as we’re approaching a third of the year, we feel we’re on track on that plan.”
Sticking With Airbus A320-family Planes
I asked Ólafsson whether he is happy with the airline’s choice of A320-200neo and A321-200neo aircraft, particularly in light of the challenges facing other single-type low-cost airlines.
He told me the A320 and A321 planes were the most logical choice for PLAY. “I mean, how many aircraft fit us? This one, we think, does perfectly,” he said. “The Boeing MAX wouldn’t be completely wrong in that it’s a similar size. But we all know the problems that Boeing has had. So we’re happy that we’re flying the Airbus. If and when we want to fly a little bit further, they have the LRS and the XLR, so the flexibility is better—even the A321 is probably slightly bigger than the MAX 10.” He discounted the Airbus A220 as being too small, “especially for the flights to Washington, which are pretty long. So, I think the A220 wouldn’t have been the right one either. I think we just nailed it.”
Airlines operating some A320-family aircraft with Pratt & Whitney Engines have had to ground part of their fleet to complete extensive testing and maintenance for a material defect identified last year. Ólafsson counts PLAY as “fortunate” not to be affected by that issue.
Why The Boeing Crisis May Not Be So Bad For Airlines
While Boeing’s inability to deliver the narrowbody planes airlines are clamoring for, Ólafsson believes this may not entirely be a bad thing.
“For the next five or ten years, I think there is a capacity issue,” he predicted. “I don’t know when Boeing is going to be manufacturing the amount of aircraft that they want. I mean, Airbus is even behind.”
Still, he noted, “It may not be all bad for the airlines themselves because we’ll probably want a ridiculous oversupply of seats.” While he describes the push to satisfy passenger demand for the Atlantic market as “very competitive,” Ólafsson does not believe that adding excess capacity would benefit airlines over the longer term.
A Comfortable PLAY
Ólafsson told me he would like to improve the airline’s aircraft utilization further and increase the passenger load factor. “We’d like to see a load factor in the mid-90s, at least during the summer, and maybe in the mid-to-high 80s during the winter,” he said.
While the airline saw some decline, particularly from December through February, with concern over the seismic activity in Iceland softening demand, the situation at PLAY is improving.
“We’ve been able to get people on the aircraft, and we have to get them to pay a little bit more,” Ólafsson said. “We are on a slow-and-steady path to be a reasonably profitable Northern European airline. We need some tweaks here and there, but we feel confident that we’re on the right track. And obviously, each year we’ll get better known in our markets. So we feel comfortable.”
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