Flight tickets from Toronto to Iceland for only $99? Yes, that’s the price Wow Air offers for a one-way trip. Wow Air, an Icelandic low-cost airline that operates services to a total of 23 destinations, is entering Canadian market by next May. As discussed in Comm 101 lecture, businesses such as Wow employ one of the generic strategies — cost leadership strategy — focusing on providing inexpensive services and products for a given level of quality1. It’s challenging for the firms to make profits while pricing significantly lower than others; in this case, Wow flies the narrow-body A320 and A3211 in order to minimize the operating cost.
Cost leaders attract a large market share as potential customers find paying lower prices for services of acceptable quality to be appealing2. This gives Wow a bigger chance to expand and survive in Canada. In the presence of existing competitors such as Air Canada and WestJet, why would customers choose a new start-up over the big companies they are already familiar with? Low price is the answer.
However, I believe that cost leaders sometimes disadvantage themselves from winning long-term customers due to the inferior services they offer. According to Skytrx Airline Review3, Wow has constantly delayed its flights, charged a lot for the extra services, lost luggage, etc. It’s true that Wow is targeting customers with low incomes and ones who do not seek supreme flight experiences. However, the company still needs to reflect: is it an optimal strategy to sell poor-quality services with rock-bottom prices? Will this truly benefit the company in a long run?
In a nutshell, Wow Air exemplifies the cost leadership strategy, showing many advantages and disadvantages of implementing such a model in the real business world.
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