The collapse of Iceland’s PLAY Airlines this week left thousands of travellers stranded and around 400 workers facing unemployment. The drama caught many in the industry off-guard but, as the dust begins to settle and we can take a long hard look at the facts, is it really such a surprise that the low-fare carrier went to the wall?
We asked Piotr Grobelny, Aviation Analyst at IBA, the leading aviation intelligence and advisory company, to give us an exclusive commentary on the particular difficulties faced by Icelandic aviation.
The collapse of PLAY Airlines marks the end of yet another ambitious, but ultimately unsustainable attempt to operate a low-cost transatlantic airline based in Iceland.
Founded in 2021 with the aim of filling the void left by the dramatic downfall of WOW Air in 2019, PLAY followed a strikingly similar path, defined by rapid growth, an over-reliance on connecting transatlantic traffic, and structural weaknesses that were never fully addressed.
The perfect location?
At first glance, Iceland may seem like the perfect location for a transatlantic hub. Situated conveniently between Europe and North America, Reykjavik offers a natural stopping point for travellers flying between the two continents. Both WOW and PLAY attempted to leverage this geographic advantage by positioning Iceland as a bridge between major markets.
However, geography alone is not enough to guarantee a successful business model. As the long and often turbulent history of Icelandair has shown, turning this idea into sustained profitability is far from easy. Between 2019 and 2024, Icelandair, a far more established and experienced player, only managed to post a modest profit of USD 28 million in 2023, a year when global travel demand was booming.
Structurally fragile
This underscores how structurally fragile the Icelandic hub model truly is, especially when operated on thin margins. Moreover, Iceland’s small domestic market cannot provide a buffer during downturns or off-seasons, making the entire business reliant on international traffic and connecting flows.
PLAY’s difficulties were compounded by shifting dynamics in the airline industry. The transatlantic low-cost space has become increasingly inhospitable in recent years. One of the major developments undermining Iceland’s role as a connecting hub has been the rise of narrowbody long-haul operations.
Airlines such as TAP Air Portugal, Aer Lingus, and Iberia have started deploying efficient single-aisle aircraft like the Airbus A321XLR to connect smaller cities across Europe and the U.S. directly. This has significantly diminished the need for a stopover in Iceland, as passengers can now fly point-to-point between secondary markets without detouring through Keflavik.
Moreover, PLAY entered two of the most competitive airline markets in the world, the United States and Europe, without a strong value proposition or sufficient scale. In the U.S., it was up against aviation giants with vast resources, loyalty programs, and comprehensive route networks.
Squeezed from both sides
In Europe, it faced an ultra-competitive low-cost ecosystem dominated by Ryanair, easyJet, and Wizz Air. These carriers operate with razor-thin efficiency and economies of scale that PLAY could never hope to match in its early years. The company was effectively squeezed from both sides, unable to carve out a sustainable niche.
CEO of PLAY Airlines, Einar Orn Ólafsson
Compared to Ryanair, PLAY operated at a structural disadvantage, with a higher CASK (Cost per Available Seat Kilometre) and lower RASK (Revenue per Available Seat Kilometre) across key years. In both 2023 and 2024, PLAY’s unit costs reached 5.6 and 5.5 US cents per ASK, respectively, exceeding Ryanair’s 5.0 in both periods, reflecting PLAY’s higher cost base and less efficient sub-scale operations.
Simultaneously, PLAY’s RASK underperformed at 5.2 and 5.0, while Ryanair generated stronger unit revenues of 6.0 and 5.6. This revenue gap is largely explained by lower load factors: PLAY averaged 80–85%, while Ryanair consistently achieved 90–95%. The combination of higher costs and weaker revenue generation left PLAY without the margin cushion necessary to survive in the intensely competitive low-cost market.
Fundamental flaws
Despite these challenges, PLAY pressed forward aggressively. By 2024, it had grown its passenger base to 1.6 million and expanded its fleet and network. However, growth did not translate into profitability. Even in 2023, a year that proved incredibly lucrative for many airlines due to a surge in post-pandemic travel demand and constrained capacity, PLAY posted an EBIT margin of -7.3% and a net profit margin of -12.5%, remaining firmly in the red. The situation worsened in 2024, with margins deteriorating further to -10.5% EBIT and -22.6% net profit. This persistent inability to achieve profitability, even under favourable market conditions, exposed fundamental flaws in the airline’s structure: high operating costs, limited pricing power, and weak access to key airports.
Nowhere was this more evident than in the airline’s U.S. operations. PLAY struggled to secure access to major hubs like JFK or Newark, which are essential for attracting higher-yield traffic. Instead, it was forced to operate out of Stewart International Airport, a facility over 60 miles north of Manhattan that lacks convenient transportation links and has limited appeal for both business and leisure travellers. While the airport’s lower fees may have been attractive on paper, in practice, it severely weakened PLAY’s competitiveness.
Mounting friction
Internally, the picture was no more reassuring. Media reports and the airline’s own statements revealed mounting internal friction, with employee dissatisfaction surfacing amid abrupt strategic changes and growing uncertainty about the airline’s direction.
Management also pointed to negative media coverage as a contributing factor, suggesting that the press played a role in undermining public and investor confidence. But for many industry observers, PLAY’s failure was not surprising. The scepticism had been there from the beginning, with the memory of WOW Air’s collapse still fresh and the fundamental business case for another Iceland-based low-cost transatlantic carrier never truly convincing.
The collapse of PLAY Airlines is unlikely to have significant ripple effects across the broader European aviation landscape. As a relatively small carrier with a niche business model centred on Iceland’s geographic position, PLAY did not hold a critical share of either the intra-European or transatlantic markets.
Iceland itself remains well connected to both Europe and North America through a mix of low-cost carriers and full-service airlines, including the continued presence of Icelandair, which maintains a strong hub at Keflavík. Additionally, the transatlantic market has become increasingly diversified in recent years, with numerous direct options operated by both legacy and low-cost airlines. As a result, PLAY’s exit is expected to have minimal impact on capacity, fares, or connectivity in either direction.
