The venture will increase the two airlines’ combined share of the transatlantic market to nearly 4%, bosses have said.
Low-cost long-haul carrier Wow was founded in 2011 by Skuli Mogensen, who recently said he expected the airline to raise $200-$300 million though an IPO during the next 18 months.
Reuters valued the deal at around $18 million and both Bloomberg and the Financial Times at around $25 million, based on a $455 valuation of Icelandair.
The two airlines confirmed the proposed acquisition on Monday (November 5), subject to approval by shareholders and Iceland’s competition authority.
"Icelandair Group has entered into a share purchase agreement to purchase all shares of airline WOW air," it said in a statement.
Mogensen, Wow Air founder and chief executive, said: “We have created a strong team that has reached remarkable success and has been a pioneer in low-cost flights across the north Atlantic.
“A new chapter now starts where Wow air gets an opportunity to grow and prosper with a strong backer like Icelandair Group that will strengthen the foundations of the company and strengthen its international competitiveness even further.”
The flag carrier’s acquisition of Wow will extend its transatlantic reach ad allow it to tap into new markets, including the increasingly important, mobile and prosperous millennial bracket.
Bogi Nils Bogason, Icelandair chief executive and interim president, added: “Wow Air has in recent years built a strong brand and enjoyed great success in the company‘s markets to and from Iceland and across the Atlantic. There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals.
“The tourism industry is one of the cornerstones of the Icelandic economy and it is important that flights to and from Iceland will remain frequent.”