Wow Air collapse: What does the aviation industry do now?

Seismically speaking, Iceland is always lively thanks to the shifting Eurasian and North American tectonic plates.

The earth moved particularly excitingly in April 2010, when airborne ash from the Eyjafjallajökull volcano grounded flights across northern Europe.

Breakfast time on Thursday was lively in Iceland, with flights grounded once again. But the shockwave this time involved Wow Air.

At 6am, the Icelandic carrier announced its flights just for that day were cancelled, while it “finalised equity raise with a group of investors”. Passengers booked on the grounded departures could get a full refund or switch to “the next available Wow Air flight”.

Optimism prevailed at 7am, when Wow Air was still selling tickets.

By 8am, though, “the next available Wow Air flight” ceased to exist, along with the immediate plans of thousands of passengers: Europeans in North America, US and Canadian citizens in Europe and a fair few British travellers stuck in Iceland.

The airline, say many people, should not have been allowed to sell tickets while it was in dire financial straits. The idea of a levy on every airline ticket to fund an airlift and refunds when airlines go bust – as a dozen European carriers have done since the collapse of Monarch 18 months ago – will gather support.

But I am against a ban on struggling airlines selling flights, and believe a levy on all tickets is against the wider interests of passengers. And this is why.

Airlines sell promises. I have a host of them: from a trip this weekend on Flybe’s last-ever departure from Gatwick (to Newquay) to a long-haul adventure on Emirates via Dubai to Tokyo in October.

Almost always, those promises come true. The vast majority of flights booked by UK travellers are on rock-solid airlines. It is as certain as anything can be in aviation that British Airways, easyJet, Jet2, Ryanair and Virgin Atlantic will flourish over the next year – the most distant horizon for scheduled flights.

It would be absurd for those of us booked on these carriers to pay, say, a £1 insolvency levy on their tickets as a form of insurance: the risk of failure is vanishingly small.

Were I to book on a weaker airline, I might consider “scheduled airline failure insurance”. But not for very long, because the aviation industry is adept at organising “rescue flights” which help those who are stranded by collapses.

After an airline fails, suddenly thousands of passengers are seeking seats on a dwindling number of alternative flights. When demand for alternative flights spikes after an airline failure, market forces would cause fares to soar. But instead rival carriers offer spare seats at below the going rate.

The Wow Air failure set a record for the speed with which they were offered: easyJet and Norwegian rushed out cut-price offers to customers of the Icelandic airline within an hour of the failure.

Future travellers are (almost always) assured of getting their money back, and those who have shelled out for scheduled airline failure insurance can expect the extra cost of replacement flights to be covered.

The passengers who are seriously out of pocket are those with outstanding claims against the airline – whether for compensation for past disruption, or costs incurred by paying for replacement flights and accommodation after Wow Air promised reimbursement.

Those lost causes could run to thousands of pounds. But responsibility rests firmly with the enforcement bodies who are supposed to police the European air passengers’ rights rules: they should have ensured that payments were made in a timely manner, rather than passengers finding themselves hanging on for cash that would never materialise.

And selling tickets even as the shutters come down on another doomed airline? I honestly can’t see a way that the authorities could prevent that. It’s not over until the last, mournful tweet from a failing airline.

Wow Air swore there was someone waiting with a big bag of cash to bail out the airline. That turned out to be wishful thinking. But in the late 1980s a small, struggling Irish airline had one final roll of the dice to stem its losses. And now Ryanair seems to be doing quite well.

Flybe, which is taking me from Sussex to Cornwall, also went into this dismal winter in terrible financial shape – and has been rescued with the help of tens of millions of pounds from Virgin Atlantic and Stobart Air.

I sympathise with every Wow Air passenger for the distress and expense they have suffered, and of course with the airline’s staff.

But while Wow Air is broke, the system is not. And it doesn’t need fixing.