Vikings fly high as Icelandair enjoys boom times

by Andreas Spaeth
November 28, 2017
Icelandair boom trans-Atlantic
Icelandair is enjoying boom times.

It was a double whammy for Icelandair. First it was hit particularly hard by the financial crisis affecting the North Atlantic island nation in 2008.

At the time, Icelandair operated eleven aircraft and carried 1.3m passengers, 30 percent  of which were lost during the crisis.

Then came the eruption of volcano Eyafjallajökull in April, 2010.

Although it never totally ceased operations, the airline’s performance and bottom line were affected.

Today Icelandair has risen like the mythical phoenix from  the ashes.

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There are currently 32 aircraft flying in Icelandair livery, almost three times as many as in 2008, and it celebrated its 80th anniversary in 2017 by breaking through the four-million-passenger mark to carry 4.1m passengers.

“In 2016 our annual capacity increased by 20 percent, then again by 12 percent in 2017,“ says chief executive Birkir Holm Gudnason in an interview with AirlineRatings in his office in Reykjavik. “For the last six years there was always an annual growth of 15 to 18 percent.’’

One impact of this was that peak-hour slots became scarce at Iceland’s only international airport and the airline’s hub in Keflavik, especially with fast-growing competition from local low-cost airline WOW Air.

“Growth here is limited only due to the lack of infrastructure,” says Gudnason.

In 2017,  Keflavik airport recorded a passenger increase of 28 per cent and handled almost nine million passengers, an unbelievable number for a country of only 340,000 inhabitants living in the least densely populated European country.

Asked about the reason behind the boom, Icelanders say the same: The volcanic eruption in 2010 has put the island on the global map and attracted travellers from further away.

At the same time, Iceland has seen many foreign LCCs serve Keflavik, multiplying capacity and slashing fare levels. It’s not the glacier-covered island itself that creates big passenger numbers, but transfer traffic.

An ideal location in the middle of the North Atlantic, exactly halfway between Europe and North America, has seen Icelandic airlines focus on cheap Transatlantic connections since the 1950s. Initially, they circumvented the strict rules of the-then International Air Transport Association cartel by using Luxembourg as a European hub.

icelandair boom iceland
The colorful Hekla Aurora. Photo: Icelandair

Today Icelandair’s route network resembles a big butterfly.

The European side of its “wing” spreads from Helsinki to Madrid, with almost all flights being routed through Keflavik to the American side, where destinations range from Anchorage in Alaska to Tampa in Florida. Much has changed here.

“In 2009,  we just served five cities in North America; in 2018, we will fly to 20 in total, including our new destinations Dallas/Fort Worth and Cleveland,” Gudnason says.

The longest routes are those from Iceland to US cities of Portland and Denver, each taking about eight hours.

In Europe,  Icelandair serves about 30 cities.

The focus is on Northern Europe and there are six-hour flights from Iceland to Barcelona, Madrid or Milan that offer no time advantage to America.

“Of course there is also no time advantage from London to New York, but on many connections we are the fastest,” says Gudnason, who notes flights to Anchorage are five hours quicker than the fastest alternatives from Europe.

“Ninety percent of our passengers are non-Icelanders and half of all passengers transfer in Keflavik, 30 percent of these stay for a stopover,”

Passengers are entitled to stay in Iceland for up to seven days without having to pay higher fares, and the idea is to lure them back for longer stays.

Despite the boom Icelandair, seen in a global perspective, is still a niche operator, with an overall trans-Atlantic market share of just 2-3 per cent but more on secondary routes.

Yet it has established a very elaborate wave system at its hub with minimal transfer times;  the official minimum connection time (MCT)  is a mere 35 minutes.

In summer, there is an extra wave for America flights, when the most important destinations like Boston and New York-JFK and –Newark are served three times a day.

“We could even increase our trans-Atlantic offerings if necessary, we are a natural hub, there is no limit,” says Gudnason.

Still, he believes in conservative growth and notes competition over “the pond’’ is tough, although Icelandair has enjoyed profitability since 2019.

“We are only doing one step at a time, we first look how it went in 2017 before we plan 2018,”  he says. “Yes,  there is overcapacity on the North Atlantic, yields went down for us since 2016.”

In 1990, Icelandair started to mainly rely on the Boeing 757. From 2004, when the last Boeing 737 left the fleet, until 2015, when the first of what is now  four Boeing 767-300s was added, the airline operated a pure 757 fleet.

Icelandair operates the medium-haul 757 in three classes (Saga Business Class, Premium Economy and Economy) and still  flies 27 Boeing 757-200s (average age 22 years) and one 757-300.

But it will soon receive brand new aircraft from Seattle.

“In February or March, we expect the first of 16 Boeing 737 MAXs on order, which will all arrive by 2021,” says Gudnason about an order of nine 737 MAX 8s (160 seats) and seven MAX 9s (178 seats).

“We are excited to welcome the MAX, giving us more flexibility, it’s perfect for our route network. We can fly the MAX on 70 per cent of our routes, only Seattle, Denver and Portland are too far.”

That doesn’t mean the 757s will be retired any time soon.

“Most of them only have half of their life cycles behind them,” observes Gudnason, “We can keep them until 2025 or even 2030, but we are waiting for the new middle-of-the-market aircraft from Boeing. We have to find the right aircraft for the right markets, not the other way around.”

Icelandair names all of its aircraft after Icelandic volcanoes as part of an effective way to promote Iceland.

Best examples are the stunning two special liveries currently flying, the 757 Hekla Aurora in the colours of the Northern Lights and the Vatnajökull sporting the stunning depiction of Europe’s largest glacier over the whole fuselage, unveiled for the 80th anniversary in 2017.

Icelandair truly is like its home: individual, unforgettable and robust.