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An information board displays that Wow Air 214 flight from Toronto to Reykjavik is cancelled at Toronto Pearson International Airport, March 27, 2019 in this picture obtained from social media.SOCIAL MEDIA/Reuters

Wow Air of Iceland is known for purple planes and cheap seats.

Now, it’s the latest budget airline to stop flying, grounding its planes on Wednesday night and stranding thousands of passengers in Toronto, Montreal and other cities.

Wow’s founder and chairman Skuli Mogensen spent the past few days in rescue talks with Icelandair Group after U.S. investor Indigo Partners LLC walked away from negotiations over an investment. But the Icelandair talks failed to provide the cash Wow needed to keep flying.

“We have run out of time and have unfortunately not been able to secure funding for the company,” Mr. Mogensen said in a letter to employees. “I will never be able to forgive myself for not taking action sooner.”

Launched in 2011, Wow employed 1,000 people and flew 11 Airbus planes to 27 cities. The halt caused chaos at airports in Toronto and Montreal, as passengers learned their travel plans were cancelled. Wow told customers on its website to look for a flight on another airline and to ask their credit card company for refunds.

Mr. Mogensen, a tech and telecom entrepreneur, competed in the no-frills travel market created by Southwest Airlines of the United States in the early 1970s. The discounters are known for cheaper fares, less legroom, lower wages and charges for everything from baggage, to food and seat assignments.

The carriers’ low fares are designed to create new demand by attracting people who ordinarily would not fly, or encouraging travellers to fly more often.

“The model can do quite well if well managed,” said Robert Rennert, a Toronto-based airline consultant.

It’s a market with plenty of competition and varying fee schedules, including Air Canada’s Rouge, WestJet’s Swoop and Flair Air. In Europe, Ryanair is the dominant discount carrier, posting a profit of €1.45-billion ($2.19-billion) in 2018.

“It’s a very simple business offering,” Mr. Rennert said. “For your really low fare, you get a seat. That’s all you get. You want a bottle of water? You pay for that. You want a meal on board? You pay that. A lot of the income that these carriers make comes from selling these add-ons.”

Ann Campbell, a project manager in Toronto, paid less than $300 for her return ticket to Copenhagen on Wow. Her flight was due to leave Toronto on Wednesday night at 7 p.m. but was cancelled at 11 p.m., after several frustrating hours of conflicting messages.

Through Wow staff announcements at the airport and e-mails from the company, passengers were given different stories – the flight was cancelled, then delayed, then available another day, then cancelled. Some travellers began seeing social-media posts on their phones from Wow passengers in other cities indicating the grounding was companywide.

“The plane was there and we were all just waiting around ready and the announcement came on [that] the flight is cancelled. ‘Please gather your baggage from the baggage area. We will not be flying tonight,’” she said. “Everyone was just shocked. We weren’t even angry. We just couldn’t believe it. Especially when you could see the plane.”

Ms. Campbell is trying to get a refund from her credit card company for what would have been her third vacation on Wow. The cheap fare made a four-day weekend in Denmark possible, even with a two-hour layover in Iceland.

“It was definitely the price,” she said. “I flew with them twice before. New planes and I was happy with them.”

Mr. Rennert, of Elevate Aviation Solutions, said the discounters operate with thin margins and need full planes and fast aircraft turnaround times to be profitable. Wow had trouble selling enough seats in a market dominated by several other budget carriers and overlapped with Icelandair.

Wow in December sold four Airbus A321 passenger jets to Air Canada for US$12-million, according to Mr. Rennert and industry reports, as the carrier tried to stay afloat. Air Canada did not immediately respond to a request for comment.

“The fact that they had to start shedding some assets in the last few months is indicative that they were going through more than just a little rough patch,” Mr. Rennert said.

The list of failed discount Canadian airlines includes Greyhound Air, Canada 3000, Jetsgo and Roots Air. Several European airlines have shut down in the past year amid volatile fuel prices and industry overcapacity, including Primera Air of Denmark, Germania of Germany, Flybmi of Britain and VLM of Belgium.

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