Introduction to PLAY Airlines Strategic Shift
PLAY Airlines, the Icelandic low-cost carrier, has recently announced a significant shift in its business model and route network. This change comes as a strategic response to the underwhelming earnings forecast for 2024, which are expected to fall below market expectations. The shift involves moving away from the airline’s previous focus on operating as a connecting carrier between Europe and North America. Instead, PLAY will now focus more on serving point-to-point leisure routes, specifically targeting markets between Iceland and various destinations in Southern Europe.
Analysis of Current Market Challenges
Throughout 2024, PLAY has faced considerable challenges in its hub-and-spoke operations across the Atlantic. The yield from these routes has been disappointing, primarily due to increased competition. Many airlines have added extra capacity on key transatlantic routes and introduced new services, leading to a drop in yields for PLAY. This situation poses financial risks reminiscent of the challenges faced by WOW Air, PLAY’s Icelandic predecessor, which ultimately ceased operations.
Strategic Response and New Focus
In response to these challenges, PLAY is adjusting its strategy to focus on direct, leisure-oriented travel. This pivot aims to capitalize on the more lucrative point-to-point market, which offers greater yield stability. The airline has expanded its operations in Southern Europe significantly in 2024, with new destinations including Madeira, Pula, Split, Valencia, Faro, Aalborg, Cardiff, Marrakech, and Vilnius. Furthermore, in 2025, PLAY plans to launch flights from Iceland to Antalya, marking its first venture into the Turkish market.
Operational Adjustments
As part of its strategic overhaul, PLAY is reducing its capacity on North Atlantic routes, starting immediately and continuing into 2025. The affected North American destinations include Boston, Baltimore/Washington, Washington Dulles, New York-Stewart, and Toronto/Hamilton. From November 1, 2024, to March 31, 2025, Miami-based GlobalX will take over the operations of these five transatlantic routes, with future plans beyond this period still under consideration.
Expansion of Fleet and Operations
To support its new strategic direction, PLAY is also expanding its operational base. The airline has applied for an Air Operating Certificate (AOC) in Malta, which is expected to be granted by spring 2025. This move will allow PLAY to station part of its fleet in Tenerife, from where it will operate flights to both Keflavík and Akureyri in Iceland, as well as to other destinations. Post-restructuring, PLAY expects to operate six to seven aircraft under its Icelandic AOC, while three to four aircraft will operate under the new Maltese AOC.
Financial Outlook and Future Plans
Despite the strategic shifts, PLAY assures that its financial position remains robust, with no immediate plans to raise additional capital. However, the airline’s earnings before interest and tax (EBIT) for 2024 are anticipated to be lower than those in 2023. Further details regarding these strategic changes will be disclosed in PLAY’s Q3 presentation on October 24, 2024. PLAY’s CEO, Einar Örn Ólafsson, expressed confidence in the new business model, emphasizing that it will enhance the airline’s market share in Iceland and continue to make PLAY a preferred choice for travelers to and from Southern Europe.