Shares of Play plunge nearly 17% after earnings forecast retraction in Iceland
The value of shares in Play fell by nearly 17% today after the company’s management retracted its earnings forecast for the year. Icelandair also invalidated its earnings forecast back in May. Jón Karl Ólason, an advisor with decades of experience in the aviation industry, suggests that operating two international airlines in Iceland may be unrealistic.
“We have observed that supply has expanded rapidly, and it’s possible that companies have rushed their operations following COVID. Demand has perhaps not behaved as favorably as anticipated,” he noted. In the past twelve months, the stock prices of both Play and Icelandair have seen significant declines.
Currently, there is a high supply of flight seats to Iceland, as well as on routes across the Atlantic. “So, this is not entirely surprising. Unfortunately,” he added.
It is evident that the airlines must reduce costs, and that process has already begun, as evidenced by Icelandair laying off over eighty employees at the end of May. There are also options to decrease supply.
“It’s certainly a tough pill to swallow, particularly since both companies have extensive route networks,” he remarked.
Jón Karl stated that the airlines might be overly optimistic about being able to sustain two international competitors in Iceland. “However, it’s clear that consideration should be given to the possibility of consolidating into one airline that can compete on a more equal footing rather than spreading resources too thinly. But I have no information on whether merger discussions are taking place. Yet, it is a question that must be considered, as this has been tried before,” he concluded.