Icelandic budget carrier Play expects to slash the proportion of hub-and-spoke operations in its activity from 75% to just 30% as it adopts a new business model.
Leisure travel will account for 35% – up from the current 25% – while charter and wet-lease services will account for the remaining 35%.
Play expects to make the transition to the new model over the next 12-18 months.
It opted for the strategic change to focus on its profitable point-to-point leisure operations, and reduce its loss-making hub-and-spoke activity.
“This [hub-and-spoke] part of [our] network is unlikely to become adequately profitable in the near future with the current operational structure,” says chief executive Einar Orn Olafsson.
Play operates to five North American destinations but will cut back to serving two or three destinations daily in summer, reducing operations further in winter.
Olafsson says the stable margins of its leisure operation, in contrast to hub-and-spoke, show “no signs of tapering off”.
But the leisure operation cannot accommodate Play’s entire fleet, currently 10 Airbus jets, so the change of model will include applying for a Maltese air operator’s certificate – which Play expects to have in spring – in order to place fleet capacity in other locations.
“The second AOC is necessary as these projects require locally-based crews for cost-saving purposes, to make them profitable,” says the carrier.
One aircraft will be stationed in Tenerife, while another three will transferred to long-term partnerships outside of Iceland. The carrier says it is discussing options with “multiple” entities interested in the aircraft.
Six aircraft will remain on the Icelandic AOC, with over half the capacity deployed on point-to-point leisure services.
Play insists its financial position is secure, but states that it will “consider” the possibility of seeking additional capital – either debt or equity – this winter or next spring in order to support the transition.
The company’s third quarter was profitable, although its surplus of $3.5 million was down on the previous $4.7 million.
Revenues for the three months to 30 September also fell nearly 10% to $100 million. Play attributes this to increased capacity and competition on the transatlantic market, factors which prompted the decision to adapt its model.
Play is forecasting that its full-year EBIT will fall below last year’s loss of $20.7 million.
