Play airline faces worsening financial outlook as stock plummets nearly 17% in Iceland

The financial outlook for Play, the Icelandic airline, has worsened significantly, with stock prices plummeting nearly 17% following the announcement that the company will not meet this year’s profit expectations. Instead of breaking even, Play will report a loss, prompting analysts to question its survival strategy.

According to industry consultant Jón Karl Ólafsson, the persistent issues faced by airlines stem from a mismatch between supply and demand. After rapidly expanding operations post-COVID, airlines are now grappling with an oversupply of seats while passenger demand remains sluggish. “The simple explanation is that supply clearly exceeds demand right now, leading to falling prices. Companies aren’t securing sufficient prices for the services they offer,” he noted.

To address these challenges, airlines like Play have two main options: cut costs or increase fares. Ólafsson explained that Icelandair has already begun reducing its workforce in response to the situation, a strategy that may help the airline to manage costs. However, raising prices poses significant challenges, especially against a backdrop of increased operational expenses driven by rising wage costs.

The general trend in the airline sector indicates that ticket prices have become a smaller part of overall travel expenses, while capacity has surged. Moreover, Icelandic airlines tend not to dictate pricing strategies but follow the lead of other carriers, which can lead to continued declining demand if they fail to align with market conditions.

Despite recent losses, Icelandair reported just above break-even results in its latest half-year report, while Play is set to release its earnings report soon. Since the start of the year, Play’s stock has fallen by 74%, with Icelandair experiencing a 35% decrease in value.