Tourism in Iceland 2016

Tourism in Iceland 1
February 2016
Tourism
in Iceland
Publisher:
Íslandsbanki Research, [email protected]
Ásta Björk Sigurðardóttir 440 4636, Elvar Orri Hreinsson 440 4747,
Ingólfur Bender 440 4635, Íris Káradóttir 440 3539,
Jóhanna Katrín Pálsdóttir 440 4609, Jón Bjarki Bentsson 440 4634,
Óðinn Valdimarsson 440 4403, Sváfnir Gíslason 440 4257
Issue date: February 29, 2016
Editor:
Ingólfur Bender, Executive Director +354 440 4635
4 Tourism in Iceland
Foreword
In recent years, the tourism industry has made its mark on Tourism is now one of the cornerstones of foreign currency
Iceland’s economy and society as a whole. After the rapid-fire revenue generation in Iceland and, with the rapid growth of the
growth of the past few years, it has become one of the country’s past few years, has strengthened the economy and contributed
most important economic sectors. This strong growth is expected to increased long-term stability. The sector has also been the
to continue in 2016. But with it come a number of challenges: mainstay of job creation during the recent upswing, thereby
to preserve the natural surroundings that are such an important playing a large part in reducing the unemployment that was such
part of Iceland’s appeal and to build up the infrastructure needed a problem a few years ago.
to maintain Iceland’s worldwide competitiveness as a travel
destination. Tourism is closely intertwined with other sectors of the economy,
as tourists purchase not only flights and accommodation but
Iceland’s ratio of tourists to inhabitants is among the highest other goods and services as well. The sector is closely linked
in the world. The number of tourists per unit of land area is to general trade and services in Iceland and affects domestic
comparatively low, however. This gives rise to questions about production and investment. The growth of the tourism industry
the tolerance limits of the tourism sector as regards nature is therefore rooted in broad-based cooperation across economic
conservation and infrastructure. Analysis of these factors reveals sectors. This is one of its main strengths, but at the same time it
that infrastructure development has not kept pace with the complicates statistical analysis of the scope of the sector.
extraordinary growth in the number of tourist arrivals in Iceland.
This discrepancy represents an opportunity to distribute tourists Íslandsbanki has now published its Icelandic Tourism Industry
more evenly around the country, smooth out seasonal peaks and report for the second time. This time the report is published in
troughs, and in so doing, better utilise existing investments. It is both Icelandic and English, with the aim of giving domestic and
also important to address issues relating to safety and nature foreign readers insight into developments and prospects in the
conservation, with particular attention to the density of visitor sector. With this publication, Íslandsbanki wishes to contribute
traffic at some of Iceland’s most appealing sites. to the provision of information about the status of the tourism
industry. We hope the report will prove a useful and informative
supplement to the extensive coverage the sector has so
deservedly has received.
Kristín Hrönn Guðmundsdóttir

Executive Director, Commerce & Services, Corporate Banking
Íslandsbanki and tourism

Íslandsbanki offers comprehensive financial services to individuals,
Figure 1. Íslandsbanki corporate loan portfolio, by sector 2015
households, firms, and institutional investors. For years, the
Corporate Banking Division has maintained teams that specialise
in fisheries, energy, real estate, and municipal affairs. Íslandsbanki
now has a tourism team and a tourism council whose members 14%
represent various departments within the Bank. 22%
Fisheries
In recent years, many of Iceland’s largest and strongest tourism Real estate companies
12%
operators have been among Íslandsbanki’s clients. The Bank Tourism
has strengthened its position in the Icelandic tourism sector, and
Trade and services
in the past two years 25% of its new loans have been to tourism
Industry and transport
companies. As of year-end 2015, loans to companies engaged in 14% 21%
tourism accounted for 17% of the Bank’s corporate loan portfolio. Other
At present, over 500 tourism companies are Íslandsbanki clients;
17% Source: Íslandsbanki
thus it is clear that tourism as an economic sector is extremely
important to the Bank. Íslandsbanki employees therefore make
every effort to provide tourism companies with the best banking
services in Iceland.
Table of contents
Summary 6
Tourism: large and growing rapidly 10
We forecast a 29% rise in tourist visits in 2016 10
Record-breaking years – one after the other 10
Seasonal peaks continue to even out 11
Americans outnumber the British 12
Nearly 30,000 tourists per day 12
Few tourists per square km 13
One of every thousand tourists worldwide comes to Iceland 14
Iceland’s growing popularity among US and UK tourists 15
Increased airline offerings: the key to the tourism boom 16
Strong impact from foreign airlines 16
KEF Airport: increased investment need 18
Tourism generates over a third of FX revenues 19
Spending per visitor rises in 2015 20
Most spent on organised tours; car rentals growing rapidly 21
Rapid job creation in tourism 22
Advertising value of the internet and social media 22
In 18th place among the world’s most competitive tourist destinations 23
Substantial investment in tourism 24
Increased impact of foreign tourists on accommodation services 24
Non-hotel accommodation growing rapidly; a third of overnight stays
in “unlisted” accommodation 25
Regional Iceland gains ground 26
Seasonality still a problem in regional Iceland 26
Less seasonal volatility and higher occupancy rates closer to the capital 27
The capital area hotel market 29
Seasonal peaks in occupancy continue to even out 29
Are there enough hotels in the capital area? 30
Pressure for new hotels likely to increase 31
Where is the capital area hotel market headed in coming years? 32
The historical relationship between average price and occupancy 34
International comparison 34
Accommodation through the sharing economy growing rapidly 38
Accommodation listings on Airbnb up 126% in less than a year 38
Bed-nights sold through Airbnb about 20% of sold hotel bed-nights 38
33% of peak season bed-nights sold via Airbnb 39
Total Airbnb revenues about 15% of hotel revenues 40
Average length of stay via Airbnb 3.3 nights 40
The car rental market 41
Active car rental agencies on the rise 41
The rental car fleet 43
Investment, turnover, and labour force 47
Prospects are good 48
Shocks to the tourism industry 49
Tourism sensitive to the business cycle 49
Currency exchange rates: a major determinant of travel patterns 50
Natural disasters: both a blessing and a curse 52
Figures and tables 53-55
Summary
• Íslandsbanki Research forecasts a 29% increase in the • We expect tourism to generate nearly ISK 428bn in export
number of tourists visiting Iceland in 2016. In comparison, the revenues and to account for around 34% of total export
World Tourism Organization forecasts a 4% increase in tourist revenues in 2016, as opposed to 18% in 2010.
numbers worldwide. If our forecast materialises, over 1.6
million tourists will travel to Iceland via Keflavík Airport during • Foreign travellers’ total payment card turnover in Iceland
the year. amounted to ISK 154.4bn in 2015, an average of just under
ISK 13bn per month, an increase of ISK 40.4bn during the
• If our forecast is borne out, tourists will outnumber the year, or 35.4%. Card turnover per tourist had been contracting
population of Iceland by a ratio of nearly five to one in 2016. ever since 2010, but in 2015 it turned around, growing from
After accounting for the average length of stay, this means that ISK 117,700 in 2014 to ISK 122,400 in 2015.
there will be nearly 30,000 tourists in Iceland each day of the
year. The ratio of tourists to inhabitants is one of the highest in • More than one in three jobs created in the Icelandic economy
the world. during the period 2010-2015 is attributable to the tourism
industry. This does not include the jobs created in other
• In spite of the high ratio of tourists to inhabitants, the tourism-related sectors: car rental, retail trade, entertainment,
number of tourists relative to geographic area is rather low in culture, recreation, and other services. It can be estimated that
international context. According to our forecast, the number more than one in ten employed persons in Iceland work in
of tourists visiting Iceland in 2016 will be about 16 per square tourism and related sectors.
kilometre. This is below the OECD average of 18 and well
below the EU average of 103. • According to the World Economic Forum, Iceland ranks 18th in
a field of 141 countries in terms of the world’s most competitive
• International tourists worldwide totalled 1,184 million in 2015, tourism destinations. Its strengths include its human capital,
and about 0.1% of them visited Iceland, or one out of every the openness of the country and connectedness to airline
thousand. In international context, Iceland’s tourism sector routes, and its tourism infrastructure. Other advantages are
is not large, and there are certainly opportunities for further its safety and cleanliness. Factors that somewhat cut into the
growth in spite of the recent increase in historical terms. competitiveness of Icelandic tourism include a shortage of
cultural activities and high prices.
• Seasonal fluctuations in tourist visits have diminished. The
share of tourists visiting Iceland in June, July, and August • Although foreign tourists have long been important for the
peaked at just under 50% in 2010. Since then, it has fallen Icelandic hotel and guesthouse sector, their importance
markedly and is now about 40%. The countries that have has soared in the recent past. During the period from 1998
reduced this seasonality the most are the UK and Japan, as through 2010, nearly 69% of sold bed-nights were sold to
only 15% of Japanese tourists and 18% of British tourists foreign nationals and the other 31% to Icelandic nationals.
come in June, July, and August. In 2015, the percentage sold to foreign nationals was 85%,
an increase of 13 percentage points since 2010. Icelandic
• Most tourists come from the US and the UK, and a larger nationals therefore account for 15% at present and have
proportion of travellers from these countries choose Iceland as declined by half since 2010.
a destination. Just over 1.9% of the Americans who travelled to
Europe came to Iceland during the first 10 months of 2015, as • In international context, however, such a large percentage of
opposed to 0.5% in 2010. Roughly 0.41% of British travellers bed-nights sold to foreign nationals is uncommon. In all of the
who went to Europe in the first 10 months of 2015 came to EU countries combined, for example, less than half of sold
Iceland, up from 0.14% in 2010. Iceland has therefore lured bed-nights (46%) are sold to foreign nationals.
market share away from other destinations among British and
American tourists over this period. • A total of 6.67 million bed-nights were sold nationwide in
Iceland in 2015, an increase of 21.5% from the previous year.
• About 90% of all tourists who come to Iceland arrive and depart In the first 10 months of 2015, the number of bed-nights
via Keflavík Airport. As a result, the airport and the available sold was up 21% year-on-year and, according to data from
flights to Iceland are a major contributor to the upswing in Eurostat, Iceland was the only country to see an increase of
Icelandic tourism. According to information from Isavia, seven more than 20%. For example, growth in sold bed-nights in all
airlines offered scheduled flights to Iceland in 2009, while 25 EU countries combined measured 3% over the same period.
airlines plan scheduled flights to Keflavík Airport at some point
in 2016.
• We estimate that listed bed-nights constitute about 68% • It is estimated that through 2019, a total of 2,450 new hotel
of total overnight stays by foreign nationals in 2015, with rooms will be built, at a total investment of over ISK 55bn.
the remaining 32% classified as unlisted bed-nights. Such Hotel-related investment in 2016 is estimated at ISK 20.2bn,
unlisted bed-nights could be due to accommodations through or 7.5% of projected business investment for the year.
the sharing economy, including stays in privately owned
housing, stays with friends or relatives, and so on. • In 2015, the average price for hotel accommodation in
Reykjavík (EUR 119) was higher than in Copenhagen
• The increased weight of foreign nationals in overnight (EUR 112) and Oslo (EUR 107) but similar to that in Stockholm
accommodation is driven by regional Iceland. Examining the (EUR 120). This is because the average price per room has
greater Reykjavík area reveals that the share of bed-nights risen much more in Reykjavík than in the other cities since
sold to foreign nationals has remained relatively stable at 2011, or by 49%.
around 89% since 2010. There has been substantial growth
in guest accommodation sold to foreigners in West Iceland, • In addition, among Nordic capitals, revenue per available room
Northwest Iceland, and the West Fjords, however, with the (RevPAR) has risen most in Reykjavík since 2011, or 83%.
percentage of bed-nights sold to foreigners rising by 30, 24, RevPAR in Reykjavík has risen from the lowest in the Nordic
and 19 percentage points, respectively, since 2010. region in 2011 to the highest. RevPAR is the metric that is
most used to estimate the profitability of hotel operations.
• Of the 6.67 million bed-nights sold nationwide in 2015, 2.82
million, or 42%, were in the capital area. In regional Iceland, • As of end-November 2015, a total of 2,681 properties in
there were 3.85 million bed-nights sold, or 58% of the Reykjavík were listed on Airbnb, as opposed to 1,188 in
nationwide total. December 2014, an increase of 126% in less than a year.
• In 2015, hotels accounted for 2.96 million sold bed-nights, • We estimate that, over the twelve-month period beginning in
an increase of nearly 650,000, or 28.1%, year-on-year. Bed- November 2014, roughly 358,000 bed-nights in the greater
nights sold to Icelanders declined by just over 6,500 in 2015, Reykjavík area have been sold through Airbnb. In comparison,
while sales to foreign nationals increased by 655,000. It is 1,782,000 hotel bed-nights were sold in the capital area over
clear, then, that foreign tourists account entirely for the growth the same period. Bed-nights sold through Airbnb therefore
in the hotel market in 2015. equal about 20% of hotel bed-nights sold in greater Reykjavík.
• The number of available hotel rooms has never grown as • Most bed-nights sold through Airbnb were sold in August,
strongly in a single year as it did in 2015. According to or 63,200. In comparison, 189,000 bed-nights were sold in
Statistics Iceland, 872 new rooms were added during the capital area hotels in August 2015; therefore, the number of
year, most of them due to the opening of Foss Hotel Reykjavík, bed-nights sold via Airbnb was about a third of the number
the Kea hotels, Hótel Skuggi, and Hótel Storm. The number of sold in hotels during the same month.
rooms available in the greater Reykjavík area rose by 26.3% • In October 2015, the number of bed-nights sold via Airbnb
in 2015, the largest increase ever recorded. In spite of this was up by about 22,000 year-on-year. The increase measured
extraordinary historical growth in hotel rooms, the number of 225% and the number of sold bed-nights in October 2015
tourists grew proportionally more in 2015, or by 30.2%, and was more than three times greater. Over the same period,
the hotel room occupancy rate rose from 77.6% to 78.8% as a the increase in hotel bed-nights in the greater Reykjavík area
result. measured 29%. These figures highlight the explosion that has
• Among capital cities in the Nordic region, the proportional taken place in the sharing economy.
increase in hotel room offerings was greatest in Reykjavík in • During the twelve-month period beginning in November 2014,
2015. total revenues deriving from Airbnb-listed accommodation
• In 2016, an estimated 290 new hotel rooms will be available, in Reykjavík amounted to ISK 2.22bn. Capital area hotels’
an increase of 5.8% in the total supply. As a result, it is likely revenues over the same period totalled ISK 14.5bn. Revenues
that for yet another year, the increase in supply will not keep generated via Airbnb over those twelve months therefore
pace with demand. We estimate that more than 1,400 totalled just over 15% of hotel revenues for the same period.
additional hotel rooms are needed to meet this rise in tourist • Over the four months beginning in June 2015, revenues from
numbers and maintain the same occupancy rate. Therefore, Airbnb listings totalled ISK 1.35bn, or 61% of total revenues
two things will happen: the occupancy rate will rise in 2016, for a twelve-month period. In comparison, capital area hotels’
and a larger percentage of tourists will seek out non-hotel revenues for the four months from June 2015 onwards
accommodation. amounted to 51% of total revenues for a twelve-month period.
Therefore, seasonality is more of a factor in the Airbnb market
than in the hotel market.
• The average length of stay among Airbnb guests in Reykjavík is • The car rental fleet has grown faster than the general private
3.3 nights, and stays are longer over the colder months of the vehicle fleet in Iceland. Rental vehicles accounted for 2.4% of
year. This accords with the results of the survey conducted by the total fleet in Iceland in 2006 and 6.8% in 2015. If forecasts
the Icelandic Tourist Board among foreign visitors to Iceland, materialise, this proportion will rise to as much as 8% in 2016.
which indicate that 40.4% of tourists stay 3-4 nights in the
greater Reykjavík area. • In 2015, the 20 largest rental agencies owned some 85% of
the total rental car fleet, about the same as in 2014. Most
• The rental car fleet grew by a full 26% between 2014 and agencies appear to have expanded their fleet to accommodate
2015, while the number of tourists visiting the country the growth in the market as a whole.
increased 30%. There had been a pent-up need to expand the
fleet, as it had grown by only 7% between 2013 and 2014, • The car rental fleet is relatively young: 87% of vehicles are five
while the number of tourists grew by 24%. years old or younger, and 64% are only a year or two old. In
comparison, only an estimated 13-15% of the country’s total
• Between 2003 and 2014, the number of operating permits fleet of private vehicles are five years old or younger.
for car rental agencies trebled, from 51 to 151. In 2015
growth was virtually flat, with only one new agency obtaining • Over the period from 2010 through 2014, rental cars have
a licence. It appears that this was due to thinning in the sector; accounted for about 42% of all new cars sold in Iceland. They
i.e., inactive licence holders left the market and new ones accounted for 43% in 2015, when some 6,600 of the 15,300
came in to take their place. private cars sold were to rental agencies. This ratio is expected
to remain broadly unchanged in 2016, with rental vehicles
• The number of tourists visiting Iceland is expected to grow by accounting for 7,500 of 17,500 cars sold.
29% in 2016, and it is clear that the number of active car rental
agencies will rise during the year. • Turnover among car rental agencies has grown rapidly, in line
with increased activity in the sector. In 2008, the sector’s total
• From 2006 to 2014, the number of rental vehicles rose turnover was ISK 7.5bn, whereas in 2015 it had grown to ISK
from 4,756 to 12,179. For 2015 the fleet size was forecast 33bn. It is estimated that as many as 900 people are directly
at 14,000, but the actual number was 15,401. Expansion is employed in the car rental sector.
expected to continue, with the fleet size projected to peak in
2016 at 18,500, a 20% increase year-on-year.
• The average price of new rental cars was about ISK 3m in • The global economic recession in 2008 is a recent example
2015; therefore, the sector’s direct investment in motor showing clearly how a worldwide economic downturn can
vehicles totalled about ISK 19.5bn exclusive of VAT during the affect tourist numbers and the tourism industry in general.
year. Based on projected car sales in 2016, it can be assumed For instance, global GDP growth was flat in 2009, and there
that the rental sector’s direct investment in vehicles will total was a 4.0% contraction in the number of tourists at the same
ISK 22.5 this year. This figure does not include a vast number time. In Iceland, there was weak growth in tourist numbers in
of other related purchases, such as tyres, spare parts, petrol, 2008, followed by a contraction in both 2009 and 2010. The
and investment in housing. contraction came on the heels of relatively swift growth in the
number of travellers to Iceland during the pre-2008 upswing,
• The increased importance of tourism in the Icelandic economy much of it due to business travel.
has diversified both the country’s foreign exchange revenues
and the general economy. This should enhance economic • The real exchange rate of the ISK has risen considerably
stability in the long run. On the other hand, increased activity during the recent tourism boom. This has eroded the Icelandic
in the tourism industry has made the Icelandic economy tourism industry’s competitive position in terms of prices.
more vulnerable to shocks to the sector. Such shocks could Research shows that changes in the real exchange rate of a
take many forms, including natural disasters and economic tourist’s home country often have as much impact as changes
downturns or crises. in the real exchange rate of the destination country. This can
be seen, for instance, in the surge in the number of Icelanders
• Natural disasters can be a double-edged sword for the tourism travelling abroad during the recent rise in the real exchange
sector, as was the case with the Eyjafjallajökull eruption early rate of the ISK. Furthermore, growth in tourist visits to Iceland
in 2010. The eruption caused a contraction in tourism at has been greatest among people from economies with a rising
first but then helped to trigger the surge that has occurred real exchange rate, especially the US and the UK. Tourists from
since. Because of Iceland’s geographical location, its tourism the eurozone have increased in number as well, but to a much
industry depends largely on air traffic. About 90% of tourists lesser degree.
who visited Iceland in 2015 came by air. As a result, Iceland’s
tourism sector is more vulnerable to interruptions in air traffic
than that in many other economies where tourism is based on
a range of transportation options. Iceland’s status as an active
volcanic island therefore represents a certain risk for tourism.
Tourism: large
and growing rapidly
Yet another record year is underway for Icelandic tourism. We worldwide. If our forecast materialises, over 1.6 million tourists
expect the sector to break records in foreign exchange revenue will travel to Iceland via Keflavík Airport (KEF) during the year. The
generation, size relative to the economy, and number of tourists forecast is based on currently available figures on the number of
visiting Iceland, to name just a few categories. The burgeoning of foreign tourists plus information from Isavia concerning expected
tourism has strongly affected the Icelandic economy, playing an air traffic over the coming year, which indicates a strong increase
important role in the upswing of the past few years and making its in air traffic through KEF. The expected increase in available flights
mark on Icelandic society as a whole. The scope of the sector is in 2016 is much larger than the actual increase in 2015. On the
obvious to all, as the ratio of tourists to inhabitants is one of the other hand, Isavia projects a rise in the ratio of through passengers
highest in the world at present and appears set to rise even higher. to total passengers landing at KEF in 2016; i.e., a smaller
Iceland has a strong competitive position as a tourist destination, percentage of total passengers will actually enter the country.
but the challenge is to follow up on its popularity with infrastructure
development, including hotels and recreational facilities, and to Record-breaking years – one after the other
make better use of existing investments. The steep increase in
flights to Iceland has made the growth of the sector possible, and According to figures from the Icelandic Tourist Board, 1,262,000
the outlook is for a significant rise in flight offerings this year. In our tourists departed from Iceland via KEF in 2015, a year-on-year
opinion, tourism will grow even stronger in 2016, both as one of the increase of just over 30%. This does not include travellers arriving
pillars of the Icelandic economy and as the country’s largest source with cruise ships and the Norræna ferry, nor does it include those
of foreign currency. travelling to other harbours or airports. According to the World
Tourism Organization, global tourism grew by about 4.4% in 2015
and by an average of 3.5% per year over the period from 2005-2014.
We forecast a 29% rise
Since 2010, however, annual growth in tourist visits to Iceland has
in tourist visits in 2016 averaged 22.4%, dwarfing worldwide growth rates.
Íslandsbanki Research forecasts a 29% increase in the number
of tourists visiting Iceland in 2016. In comparison, the World
Tourism Organization forecast a 4% increase in tourist numbers
Figure 2. Number of visitors travelling through KEF (thousands)
29%
1,800
1,600
30.2%
1,400
1,200 24%
1,000 21%
20%
800 18%
15% 3% -2% -1%
600 10%
13% 4%
400
200
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
Source: Icelandic Tourist Board, ÍSB Research

Figure 3. Number of tourists travelling through KEF, by month (thousands)
200 16%
17%
150 20%
25%
24%
100 26% 31%
26%
28% 25% 30%
27%
50
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2003 2010 2011 2012 2013 2014 2015

Source: Icelandic Tourist Board
Seasonal peaks continue to even out

Figure 4. Number of tourists, by season (thousands)
Iceland’s tourism industry has been characterised by seasonal
peaks and troughs, with most tourists arriving in June, July, and 55%
800
August. The share of tourists visiting during these three months 50%
700
peaked at just under 50% in 2010. Since then, it has fallen
600 45%
markedly and is now about 40.2%. Since 2010, the increase in
500 40%
tourist numbers has been proportionally strongest in November
400 35%
and December, with year-on-year growth exceeding 30% during
300
these two months. Over the same period, year-on-year growth has 30%
200
been weakest over the summer months, at 16-20%. Stakeholders 25%
in the tourism industry have therefore been highly successful in 100
20%
marketing Iceland as a year-round destination. A number of 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2003
2004
scheduled events and favourable off-peak airfares have also

fostered this development, which has solidified the operational
Jun-Aug Other months
foundations for businesses in tourism-related fields. Íslandsbanki
Share of tourists in Jun-Aug (r. axis)
Research forecasts that this trend will continue in 2016, with
seasonality diminishing still further. Source: Icelandic Tourist Board
The countries that have supported this trend the most are the UK
and Japan. Travellers from these two countries stand out in that Figure 5. Share of tourists in each month, by nationality 2015
most of them visit Iceland outside the peak season. As is stated
above, over 40% of all tourists visit in June, July, and August, 18%
whereas only 15% of Japanese and 18% of British tourists come 16%
during those months. This smoothing of seasonal fluctuations is 14%
very important to the sector, and increased visits from these two 12%
countries have supported that trend. 10%
8%
6%
4%
2%
0%
UK Japan All countries

Americans outnumber the British

Over the thirteen years that the Icelandic Tourist Board has
measured tourist numbers by nationality, visitors from the UK have Figure 6. Number of UK and US tourists (thousands)
been the largest group eleven times. In the other two instances,
Americans have been the leaders: in 2011 and again in 2015. This 459 484
is due to a surge in visitors from the US, who grew in number by
90,700, or nearly 60% year-on-year. The number of travellers from
the US and UK has soared since 2010. For example, the number of
British and American visitors to Iceland in 2015 alone exceeds the
total number of tourists from all countries in 2010 by a full 25,000.
The total number of tourists has risen by more than 800,000 since
2010, and the US and UK account for 372,000 of them, or nearly Total number of tourists 2010 British and American tourists 2015
half. The catch-all category “Other” was the third-largest group,
according to Icelandic Tourist Board data. The Icelandic Tourist Source: Icelandic Tourist Board
Board database does not contain more detailed information on

that group; therefore, it is uncertain what countries are represented
there. As a result, analysis of the increased diversity among visitors approach 5:1 in 2016. After accounting for the average length of
to Iceland is limited in this respect. Greater diversification of stay, this means that there will be nearly 30,000 tourists in Iceland
nationalities is a positive development in tourism. Broadening the each day of the year. As a result, they account for 8.3% of the
base of tourists in this way better prepares the sector to withstand combined total population of year-round residents plus tourists.
shocks such as terrorist attacks or economic downturns that This ratio has often been used as an indicator of the size of the
could strike specific countries or regions. Such shocks can have tourism sector in various countries. By this criterion, Iceland ranks
an enormous impact on tourism, as is discussed more fully in the seventh, between Monaco and Malta. The countries above Iceland
section “Shocks in tourism”. on the list are small ones, including the Vatican (#1), Andorra
(2), and the Bahamas (5). No large countries have a tourist-to-
Nearly 30,000 tourists per day inhabitant ratio as high as Iceland’s. For example, in Spain, the
ratio is 2.2%; in France, 2.0%; and in Italy, 1.3%. Smaller countries
Tourists outnumbered inhabitants by nearly 4:1 in 2015, and if have somewhat higher ratios, however: Estonia, 4.0%; Austria,
our forecast is borne out, the ratio of tourists to inhabitants will 3.8%; Ireland, 3.7%, and Denmark, 2.5%. It should be noted that
Figure 7. Number of tourists, by country (thousands)
300 56% 60%
250 50%
200 37% 40%

32%
150 28% 30%
23% 24% 23%
19% 20%
100 18% 17% 20%
15%
14%
11%
50 8% 9% 8% 10%
5%
0 0%
Finland
Netherlands
Poland
Japan
Russia
US
Germany
France
Canada
China
Sweden
Spain
Switzerland
Italy
UK
Other
Norway
Denmark
2010 2015 Annual growth since 2010, selected countries (r. axis) Total annual growth since 2010 (r. axis)
Figure 8. Ratio of tourists to total inhabitants, yearly average
84%
30%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Vatican City
Andorra
Palau
Bahrain
Bahamas
Monaco
Iceland
Malta
San Marino
Maldives
Antigua & Barbuda
Seychelles
Singapore
Cyprus
Barbados
St. Kitts & Nevis
Estonia
Austria
Croatia
St. Lucia
Denmark
Montenegro
Luxembourg
Qatar
Spain
France
Netherlands
Canada
Italy
UK
Saudi Arabia
Australia
Taiwan
Turkey
Thailand
Poland
US
Germany
South Korea
Mexico
South Korea
Russia
Argentina
Japan
Iran
Indonesia
China
Brazil
India
Source: World Bank, ÍSB Research
because these are average year-round figures, the ratio is much in 2016 will be about 16.2 per square kilometre. This is slightly
higher during the summer. Therefore, we estimate that tourists below the OECD average of 17.6 and far below the EU average of
will account for over 18% of all inhabitants in Iceland this summer. 102.6. It is worth noting that the countriesranking on either side of
because these are average year-round figures, the ratio is much Iceland in terms of the tourist-to-inhabitant ratio – i.e., Monaco and
higher during the summer. Therefore, we estimate that tourists Malta – have a much higher tourist-to-land area ratio than Iceland
will account for over 18% of all inhabitants in Iceland this summer. does. Monaco’s is 164,000 per square kilometre and Malta’s
4,943. Therefore, Iceland’s vast wilderness areas are still far from
Few tourists per square km being as overstuffed with tourists as are most other countries with
equally large tourism sectors. It can be said, then, that there is still
Even though the number of tourists in Iceland is large relative to considerable scope for growth in Icelandic tourism, although some
the population and the ratio described above is high, the country is sites within the country may be approaching the saturation point in
large and therefore not overfilled with tourists relative to land area. terms of tourist traffic.
Actually, the number of tourists per unit of land area is rather small.
According to our forecast, the number of tourists visiting Iceland
Figure 9. Number of tourists per km2

164.0
16.9
11.9
5.4
4.9
4.9
3.37
4.7
1.6
1.4
1.2
(thousands)
600
500
400
300
200
100
0
Monaco
Singapore
Bahrain
Aruba
Andorra
Malta
Bermuda
Maldives
American Samoa
Cayman Islands
Barbados
Sicily
Netherlands
Luxembourg
Austria
Cyprus
Belgium
Switzerland
Qatar
Denmark
Croatia
Italy
France
Greece
Israel
UK
Korea
Lebanon
EU
Spain
Ireland
Hungary
Czech Republic
Slovenia
Albania
European Union
Montenegro
Germany
Portugal
Malaysia
Georgia
Estonia
Bulgaria
Thailand
Poland
Turkey
Costa Rica
Ukraine
Tunisia
Romania
Lithuania
Japan
Cuba
Latvia
Vietnam
OECD countries
Iceland
Macedonia
Philippines
Uruguay
Belize
Sweden
Mexico
Serbia
New Zealand
Egypt
All countries
Source: World Bank, ÍSB Research

One of every thousand tourists

worldwide comes to Iceland
According to the World Tourism Organization, there were 1,184
Figure 10. Number of tourists, by destination
million tourists worldwide in 2015, an increase of 4.4% year-on-
year. Only 0.1% of those tourists – or one in a thousand – visited 100
Iceland. 90
80
Figure 11 shows the most popular travel destinations in 2013, 70
60
together with other selected destinations. The figure highlights 50
how few travellers come to Iceland relative to the global total. In 40
terms of the number visitors, Iceland as a destination ranks 110th 30
20
among the countries for whom information could be obtained 10
from the World Bank, yet it ranks 176th in terms of population. It 0
Russian
Federation
Iceland 2015
China
France
US
Spain
Turkey
Germany
UK
Danmörk
Thailand
Sweden
New Zealand
Iceland 2013
Italy
should be borne in mind that at present there are 196 independent
countries in the world. When population is factored in, however,
the picture changes radically, as can be seen in Figure XX. Tourists
outnumbered the population of Iceland by 2.4:1 in 2013 and, if our
forecast materialises, they will outnumber inhabitants by nearly Source: World Bank, Icelandic Tourist Board, Statistics Iceland
5:1 in 2016. Iceland is therefore at the top of the list in comparison
with these same countries and in Figure 10, after accounting for
population. Figure 11. Number of tourists per inhabitant
visitors, Iceland as a destination ranks 110th among the countries 6,0

for whom information could be obtained from the World Bank, yet it 5,0
ranks 176th in terms of population. It should be borne in mind that
4,0
at present there are 196 independent countries in the world. When
population is factored in, however, the picture changes radically, as 3,0
can be seen in Figure XX. Tourists outnumbered the population of 2,0
Iceland by 2.4:1 in 2013 and, if our forecast materialises, they will 1,0
outnumber inhabitants by nearly 5:1 in 2016. Iceland is therefore at
0
the top of the list in comparison with these same countries and in
Thailand
Russian
Federation
Iceland 2015
France
Italy
New Zealand
Sweden
Turkey
UK
US
China
Iceland 2013
Danmörk
Spain
Germany
Figure XX, after accounting for population.
Source: World Bank, Icelandic Tourist Board, Statistics Iceland

Figure 12. US tourists arriving in Iceland as a share of US citizens travelling abroad
2.0%
1.5%
1.0%
0.5%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US tourists in Iceland as a share of US travelling abroad US tourists in Iceland as a share of US travelling to Europe
Source: Icelandic Tourist Board, US Tourist Board
Iceland’s growing popularity among US and UK tourists

In this context, examining the two countries that produce the It is noteworthy that of those who travel to Europe, the percentage
most visitors to Iceland – the US and the UK – reveals that, among of Americans who visit Iceland is considerably larger than the
overseas travellers, the percentage who visit Iceland has grown by percentage of British nationals.
leaps and bounds. Of Americans who travelled abroad in the first
10 months of 2015, 0.8% came to Iceland, as opposed to 0.2% Just over 1.9% of Americans who travelled to Europe came to
in 2010. Of the Americans who travelled to Europe, just over 1.9% Iceland, as opposed to only 0.4% of Europe-bound travellers from
came to Iceland during the first 10 months of 2015, up from 0.5% in the UK. If American and British nationals travelled equally much,
2010. The share has therefore increased by 1.5 percentage points the number of American travellers should be much larger, as the
over this five-year period. population of the US is nearly five times that of the UK. But this is
not the case, as American tourists outnumbered British tourists to
Of British nationals who travelled abroad in the first 10 months of Iceland by only 1,800 in 2015. The reason for this is that British
2015, 0.33% came to Iceland, up from 0.11% in 2010. Of British people travel much more than Americans do. In 2014, British
travellers who went to Europe in the first 10 months of 2015, nationals travelled abroad 60 million times, the equivalent of at
roughly 0.41% came to Iceland, as compared with 0.14% in 2010. least one trip per person for 90% of the total population. On the
other hand, Americans travelled abroad 30.8 million times, which
is the equivalent of at least one trip per person for 10% of the total
population.
Figure 13. UK tourists arriving in Iceland as a share of UK citizens travelling abroad
0.5%
0.4%
0.3%
0.2%
0.1%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
UK tourists in Iceland as a share of UK travelling abroad UK tourists in Iceland as a share of UK travelling to Europe
Source: Icelandic Tourist Board, British Office for National Statistics (ONS)
Increased airline offerings:

the key to the tourism boom
About 90% of all tourists who come to Iceland arrive and depart
Figure 14. Number of airlines with scheduled flights via KEF
via Keflavík Airport. As a result, the airport and the available flights
to Iceland are a major determinant of the upswing in Icelandic
tourism. Increased offerings and the more favourable airfares that
have resulted from increased competition in flights to Iceland have
made it easier for foreign tourists to visit the country. 25
According to information from Isavia, seven airlines offered 20

18
scheduled flights to Iceland in 2009, whereas 25 airlines plan 16
15
scheduled flights to Keflavík Airport at some point in 2016. In
addition to this are the regular chartered flights on behalf of 11 11 11
Icelandic and foreign travel agencies and flights via other domestic 7
airports in Akureyri, Egilsstaðir, and Reykjavík.
The frequency of flights to Iceland via KEF grew by 17% per year from
2010 through 2015. Over the same period, the number of tourists 2008 2009 2010 2011 2012 2013 2014 2015 2016
visiting the country grew by over 22% per year. This indicates that Source: Isavia
larger planes are coming to Iceland and that seat utilisation rates
are rising. This assumption is supported by figures from Icelandair
and IATA. As Figure 15 shows, Icelandair’s seat utilisation rate has Figure 15. Seat utilisation
risen considerably since 2010. European and other international
airlines have also seen utilisation rates rise over this period. 84%
Strong impact from foreign airlines 82%
Foreign airlines’ decision to begin offering flights to Iceland

80%
has made a strong impact on tourism. In 2012, EasyJet began
scheduled flights to Iceland 10 months of the year. That year the
78%
number of British visitors rose by 27,000, or 40%, whereas the
increase in the previous year was just over 7,000, or 12%. In 2013,
EasyJet began flying to Iceland year-round, and the frequency of 76%
flights from the UK to KEF rose by 67% that year. At the same time, 2010 2011 2012 2013 2014 2015
the number of British visitors rose by 42,500, or about 45%. This Icelandair IATA Europe IATA international traffic
is the largest increase in British tourists in the history of Icelandic
Source: Icelandair, IATA
Tourist Board figures, and the increase in air traffic between the UK
and Iceland is also the largest since the onset of the tourism boom
in 2010. major factor in the increased number of American tourists visiting
Iceland. In 2015, the number of Americans visiting Iceland grew by
This pattern can also be seen among German and American
nearly 60%. As a result of this surge in the number of Americans
tourists. In 2011, Delta Airlines began scheduled flights to Iceland
travelling to Iceland, most tourists in Iceland now come from the US.
four months of the year: June, July, August, and September. The
number of American visitors to the country grew by more than 60% In 2015, Air Berlin lengthened its schedule of flights to Iceland to
year-on-year over these four months, and growth for the year as a nine months of the year, as opposed to five in 2014. Over the four
whole measured almost 52%. In 2012 through 2014, US airlines additional months, 25% more German tourists came to Iceland
increased the frequency of flights to Iceland, flying to KEF 51% more than in those same months in 2014, and over the year as a whole,
often in 2014 than in 2012. The number of Americans visiting the the number of visits by German tourists rose by more than 20%.
country grew by 60% over the same period. In 2015, Delta Airlines Flight offerings from Germany to KEF have increased by 17% per
added the month of March to its flight roster, and US airlines’ total year since 2010 and the number of German tourists by 14%.
flight offerings to KEF grew by 49%. The increase in US-bound
flights by domestic airlines WOW and Icelandair has also been a
Figure 16. Flights to KEF, by country
3.500
3.000
2.500
2.000
1.500
1.000
500
Russia
Finland
Netherlands
Poland
US
Germany
France
Canada
Sweden
Spain
Switzerland
Italy
UK
Denmark
Norway
Other
2010 2011 2012 2013 2014 2015
Source: Isavia
Figure 16 shows flight offerings to KEF, classified by country. The increased flight availability and increased tourist numbers. Seat
US, the UK, and Germany are at the top of the list in terms of total utilisation and aircraft size, together with the nationality composition
offerings, and most tourists come from these countries. Figure 17 of passengers on each flight, affect this relationship and cause
shows annual growth in flight offerings and number of visitors in deviations in some instances. For example, this is why the increase
the eight countries that produce the most travellers to Iceland. As in visitors from the US and the UK exceeds the increase in flight
the figure illustrates clearly, there is a strong connection between availability from those countries.
Figure 17. Increase in flights and number of tourists since 2010, by country
60%
50%
40%
30%
20%
10%
0%
Russia
Finland
Netherlands
Poland
US
Germany
France
Canada
Sweden
Spain
Switzerland
Italy
UK
Denmark
Norway
Other
Annual increase in flight offerings Annual increase in number

Source: Isavia, Icelandic Tourist Board
KEF Airport: increased investment need

The exponential growth in Iceland’s tourism sector has increased Figure 18 shows the largest airports in the world, by number of
the need to invest in KEF Airport, and substantial investment is passengers, together with KEF. The figure illustrates clearly how
indeed planned for the coming term. Isavia projects that by 2040, small KEF is in this context. Nevertheless, Keflavík stands out in
nearly 14 million passengers could travel through KEF, which that the increase in the number of passengers travelling through
translates to an annual increase of 4.3% for the next 25 years. In KEF far exceeds the increase at the largest airports.
comparison, the airport welcomed nearly 5 million passengers
in 2015, an increase of just over 25% year-on-year. Isavia’s
projections therefore assume a much more modest growth rate
than has been seen recently.
Figure 18. Number of passengers, by airport (millions)
120 30%
100 25%
80 20%
60 15%
40 10%
20 5%
0 0%
Atlanta (ATL)
Beijing (PEK)
Tokyo (HND)
Dubai (DXB)
Chicago (ORD)
Los Angeles (LAX)
Hong Kong (HKG)
Paris (CDG)
Dallas (DFW)
Keflavík (KEF)
London (LHR)
Passengers % change year-on-year

Source: Isavia, Airports Council International
Tourism generates over a third of FX revenues

In recent years, tourism has grown into one of the cornerstones
of foreign currency generation in Iceland. As has always been the Figure 19. Good and services exports, by sector (ISK bn)
case, Iceland’s main export sectors are based on natural resource
utilisation, but they are now more diverse than before. Lack of 1,254
1,191
diversity in generation of FX revenues was long a procyclical element 1,068 1,096 1,089
1,020
of the Icelandic economy. Tourism has added some of the diversity 928
27%
27%
that was lacking, which should create greater stability in the future. 33% 31% 30% 30%
17%
The growth of the tourism sector has also connected Iceland more 35% 20%
closely to economic developments in tourists’ countries of origin. 21% 20% 20%
23% 22%
In this respect, the Icelandic economy is more closely linked to 24% 22%
25% 22% 22%
25% 34%
neighbouring economies. 24% 25%
31%
25% 28%
19% 22%
Year-2015 revenues from goods and services exports are estimated 18%
at ISK 1,191bn, an increase of 9% year-on-year. Tourism generated 2010 2011 2012 2013 2014 2015 2016F
ISK 368bn in foreign-denominated revenues during the year, or 31% Tourism Seafood Aluminum Other
of the total from all goods and services exports. We estimate that
total export revenues will grow by just over 5% this year, to about ISK Source: Statistics Iceland, Central Bank of Iceland, ISB Research
1,254bn. We expect tourism to generate nearly ISK 428bn and to
account for around 34% of total export revenues in 2016. Tourism
Figure 20. Good and services exports, by sector (ISK bn)
would then increase in terms of its share in total export revenues,
further strengthening its position as Iceland’s leading export sector.
Tourism’s share of Iceland’s export revenues has been growing in 450
recent years; for example, it was 18% in 2010. In view of this rapid 400
growth and the fact that tourism now generates considerably more 350
foreign currency than other sectors, it is appropriate to highlight the 300
importance of fostering the growth of other FX revenue-generating 250
sectors to ensure that diversity is maintained. Otherwise, there is 200
the risk that, with continued rapid growth in tourism, FX revenue 150
generation will grow more homogeneous, making the economy 100
more vulnerable to shocks in the tourism industry. 50
0
2010 2011 2012 2013 2014 2015 2016F
Tourism Seafood
Aluminum Other
Source: Statistics Iceland, Central Bank of Iceland, ISB Research

Spending per visitor rises in 2015

Foreign travellers’ total payment card turnover in Iceland amounted Figure 21. Card turnover of tourists
to ISK 154.4bn in 2015, an average of just under ISK 13bn per
month. Foreign nationals’ card turnover grew by ISK 40.4bn in
2015, or 35.4%, as opposed to 22% in 2014 and 17% in 2013.
This strong increase in card turnover among foreign nationals has 154
strengthened the ISK, and it is clear that this effect has grown
stronger year by year. In this context, however, it is also necessary 114
to consider Icelanders’ card turnover abroad, which totalled ISK 93
34.3bn in 2015. Therefore, foreign nationals’ purchases of Icelandic 80
krónur net of Icelanders’ purchases of foreign currency (the card
turnover balance) amounted to ISK 120.1bn in 2015. By way of
comparison, it is interesting to note that in 2007, the pre-crisis peak
of private consumption, the card turnover balance was negative by
over ISK 54bn.
2012 2013 2014 2015
Examining card turnover per tourist reveals a decline beginning
in 2012, as growth in the number of tourists outpaced foreign Source: Centre for Retail Studies
card turnover from 2012 through 2014. Things changed in 2015,

however, when the number of tourists rose by 30.2% and foreign Figure 22. Card turnover balance (ISK bn)
nationals’ card turnover by 35.4%, a difference of 5.2 percentage
points. The result is therefore that card turnover per tourist rose
120
from ISK 117,700 in 2014 to ISK 122,400 in 2015, which means
that each tourist spent an average of over ISK 122,000 while in 82
Iceland. Figure 23 breaks this amount down by spending category. 62
48
2007
2012 2013 2014 2015
-54 Source: Centre for Retail Studies, Central Bank of Iceland
Figure 23. Average payment card turnover per tourist, 2015
Misc. tourism services

Culture and recreation Turnover: 25,359
»
»
Turnover: 2,881
% share: 2.4%
% share:
20.70%
Petrol, car repair » Accommodation
and maintenance
Turnover: 5,129 B » Turnover: 24,310
% share:
19.9%
% share: 4.2% »
Other
Turnover: 6,738
ISK 122,000 » Retail trade
Turnover: 18,012
% share: 5.5%
»
% share: 14.7%
»
Cash withdrawals
»
Turnover: 11,186 Car rental and

% share: 9.1% other transport
Restaurant Turnover: 15,097
Turnover: 13,654 % share: 12.3%
% share: 11.2%
Most spent on organised tours;

car rentals growing rapidly
Foreign tourists’ did most of their card-based spending on It should be noted that only card turnover through Icelandic acquirers
miscellaneous tourism services in 2015. Under this category are is included here. Among the items not included are cash payments
organised tours such as whale watching, guided distance coach made by tourists who buy foreign currency before arriving in Iceland,
tours, hikes, and other such trips. This category of card turnover, package tours bought through foreign travel agencies, and services
which totalled ISK 32bn in 2015, has grown most since 2012, or purchased through other foreign booking agencies. In this context,
by 51%. The second-strongest turnover category in 2015 was of those tourists who were asked about their bookings, only 9.6%
accommodation, at ISK 30.7bn, some 99.4% of it due to hotel stays. said they booked package tours through Icelandic travel agencies.
The category that includes car rental has also grown strongly. Car It is clear, then, that payment card turnover figures underestimate
rentals now account for 99% of turnover under this item, which has total spending by foreign visitors during their stay in Iceland.
grown by about 37% per year since 2012.
Figure 24. Tourists’ card turnover, by spending category (ISK bn, at 2015 price level)
35 60%
51%
30 50%
25
37% 40%
20
25% 28% 26% 30%
25%
15
16% 20%
10 16% 13% 15%
5 10%
5%
0 0%
B
Culture and recreation
Accommodation
Petrol, car repair and

Retail trade
Passenger transport
Cash withdrawals
Public levies, etc.

Car rental and other
Restaurant services
transport expense
maintenance
2012 2013 2014 2015 Annual growth since 2012

Source: Icelandic Centre for Retail Studies, Icelandic Tourist Board
Rapid job creation in tourism

Alongside the past few years’ exponential growth in tourist numbers
Figure 26. Rise in number of employed, 2010-2015
and tourism-generated foreign exchange revenues, the number of
jobs in the sector has grown substantially. The expansion of the
tourism sector has been responsible for much of the job creation
taking place since Iceland’s post-crisis economic recovery began in
2010. The number of jobs in the general economy rose by 16,300
between 2010 and 2015, and 5,400 of them are in tourism: air
transport, travel agencies, and hotel and restaurant services.
Therefore, more than one in three jobs created in the Icelandic
economy over this period is attributable to the tourism industry.
This does not include the jobs created in other tourism-related
sectors: car rental, retail trade, entertainment, culture, recreation,
5,400 10,900
and other services.
Persons employed in air transport,
Other
travel agencies, and hospitality
Figure 25. Tourism as a share of total number Source: Statistics Iceland

of employed persons
of employed persons. The number of people employed in tourism
9.2% 9.3%
7.4% 8.3% can be expected to rise still further this year, and the sector’s share
7.0% 7.0% 7.6%
6.0% of the total number of working persons can be expected to increase
likewise. As has been pointed out, the scope of the tourism industry
is doubtless underestimated in these figures, as they do not include
related activities. It is safe to estimate, then, that more than one of
every 10 working people in Iceland are employed in tourism and
2008 2009 2010 2011 2012 2013 2014 2015
related activities. Clearly, the tourism sector has become one of the
Source: Statistics Iceland
largest segments of the Icelandic labour market.
Advertising value of the internet and social media

In the above-mentioned segments of tourism alone – air transport,
travel agencies, and hotel and restaurant services – there were There is little doubt that the internet and social media have played an
10,800 jobs in 2008, or 6.0% of the total number of employed important role in the tourism boom of the past few years. The large
persons in the economy at the time. The number of tourism workers number of people who come to Iceland then advertise the country
has risen since then, as has the share of the total: in 2015, there informally on social media, with commentary and photos from their
were 17,100 people working in tourism, or 9.3% of the total number travels. In proportional terms, the power of social media is greater
Figure 27. Frequency of “Iceland” as a search string
100
90
80
70
60
50
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016
UK US Germany
Source: Google Trends
in the case of Iceland because tourists outnumber inhabitants by a them, and this, too, has attracted attention to the country and its
much larger margin than in most other countries. The rise of social people. Stars such as Justin Timberlake, Beyoncé, Tom Cruise, and
media concurrent with the recent upsurge in tourism has been Justin Bieber have drawn considerable attention with their travels to
extremely favourable, as it is relatively much more costly for a small Iceland. It is difficult to quantify the advertising value of such visits,
economy to advertise itself through conventional channels than it is but it is significant.
for larger countries. As a result, it can be said with some certainty
that the recent growth in tourist numbers in Iceland is due in part to In 18th place among the world’s most
the simultaneous explosion in the use of social media. competitive tourist destinations
The Eyjafjallajökull eruption in 2010 is a good example of the Iceland ranks 18th out of 141 countries on the list of the world’s
power of advertising, as the eruption drew enormous attention most competitive travel destinations, according to a report
and has played a starring role in putting Iceland on the map as published by the World Economic Forum last year. Figure 28
a travel destination. In Figure 27, which illustrates the interest in shows the top 30 countries and a few from further down the list.
“Iceland” as an internet search string as compared with other
search strings, it can be seen that interest was greatest around As regards tourism, Iceland’s strengths include its human
the time of the Eyjafjallajökull eruption. Interest also spiked around capital and its labour market, the openness of the country and
the time of the eruptions at Grímsvötn (2011) and Bárðarbunga connectedness to airline routes, and its tourism infrastructure.
(2014/2015). Interest in Iceland therefore appears to be affected Other advantages are the safety and cleanliness of the country.
by volcanic activity. Although it is impossible to assert that there is And it comes as no surprise that Iceland’s natural beauty should be
a cause-and-effect relationship between the popularity of “Iceland” considered a strength in terms of its appeal as a travel destination.
as a search string and the upswing in the tourism sector, there are
signs that Iceland is increasingly talked about, which increases the One factor that somewhat cuts into the competitiveness of Icelandic
likelihood that interest in travelling to the country will be kindled. tourism is the shortage of cultural activities. Another negative
factor is the price level, where Iceland ranks 128th. Less developed
Alongside Iceland’s growing popularity as a travel destination, countries rank highest in terms of price level, while more developed
world-famous people have visited the country in increasing countries place further down. This is normal, of course, and actually
numbers. Such visits generate enormous attention on social media a plus for inhabitants that Iceland should not be further up on this
and tend to be a valuable advertisement for Iceland. Furthermore, part of the list. Countries ranking below Iceland in terms of price
large film producers have considered Iceland as a shooting location competitiveness include Norway, Denmark, Sweden, Italy, United
because of its natural beauty and the tax concessions available to Kingdom, Switzerland, and France.
Figure 28. The world’s most competitive tourist destinations
0
Spain
France
Germany
US
UK
Switzerland
Australia
Italy
Japan
Canada
Singapore
Austria
Hong Kong SAR
Holland
Portugal
New Zealand
China
Iceland
Ireland
Norway
Belgium
Finland
Sweden
United Arab
Emirates
Malaysia
Luxembourg
Denmark
Brazil
Kore, republic
Mexico
Turkey
Poland
India
Latvia
Argentina
Egypt
Paraguay
Pakistan
Nigeria
Angola
Source: World Economic Forum

Substantial investment in tourism

The rise in foreign visitors has transformed the environment in which 69% of sold bed-nights were sold to foreign nationals and the
the tourism industry operates. Large-scale investment has been other 31% to Icelandic nationals. Figure 29 depicts the rise in sold
needed in the sector in order to provide the best possible service to bed-nights from 2010 through 2015. In 2015, the percentage
a growing number of people. For example, accommodation services sold to foreign nationals was 85%, an increase of 13 percentage
have more than doubled in scale, and car rental business has grown points since 2010. Icelandic nationals therefore account for 15% at
similarly, as have most of the goods and services connected in one present and have declined by half since 2010.
way or another to tourism. If our forecast of tourist numbers is borne
out, this trend will continue in 2016, and the industry will continue In international context, however, such a large percentage of bed-
to solidify its position as one of Iceland’s key economic sectors. nights sold to foreign nationals is uncommon. Actually, in all of the
EU countries combined, less than half of bed-nights (46%) are sold
to foreign nationals Therefore, within the EU, domestic customers
Increased impact of foreign tourists
have more of an impact than foreign nationals do. This underlines
on accommodation services the uniqueness of the Icelandic tourism industry in this respect and
the importance of foreign guests to the sector.
Although foreign tourists have long been important for the Icelandic
hotel and guesthouse sector, their importance has soared in the
recent past. During the period from 1998 through 2010, nearly
Figure 29. Bed-nights - nationwide total and total per tourist
8,000,000 4.70
7,000,000 4.65
6,000,000 4.60
5,000,000 85%
4.55
4,000,000 80%
77% 4.50
3,000,000
72% 75% 77% 4.45
2,000,000
4.40
1,000,000
0 4.35
2010 2011 2012 2013 2014 2015
Icelanders Foreign nationals Bed-nights per tourist

Source: Statistics Iceland, Icelandic Tourist Board
Figure 30. Proportion of bed-nights sold to foreign nationals
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Malta
Cyprus
Croatia
Iceland
Greece
Austria
Latvia
Portugal
Estonia
Bulgaria
Slovenia
Spain
Italy
Belgium
Lithuania
Czech Republic
Hungary
EU 28
UK
Slovakia
Denmark
Netherlands
France
Norway
Finland
Sweden
Germany
Poland
Romania
2010 2015 Source: Statistics Iceland, Eurostat

Growth of accommodation services

in Iceland unparalleled elsewhere
A total of 6.67 million bed-nights were sold nationwide in Iceland in 32% classified as unlisted bed-nights. Over the period from 2010
2015, an increase of 21.5% from the previous year. Examining this through 2015, the share of unlisted bed-nights has grown most,
growth rate in international context shows how strong it is. In the or by nearly 3%, followed by other types of accommodation,
first 10 months of 2015, the number of bed-nights sold was up 21% which have increased by just over 2%. Hotels’ share of the total
year-on-year, and according to data from Eurostat, Iceland was the has contracted by nearly 5% over the same period. With the rapid
only country to see an increase of more than 20%. For example, growth of the sharing economy, unlisted accommodation has
the increase in sold bed-nights in all EU countries combined was perhaps become a more appealing option than it was previously. It
3% during the same period. Belgium and Romania come closest is in part because of this that the share of unlisted accommodation
to Iceland in terms of growth in the number of sold bed-nights over has grown. According to a Bifröst University study of apartment
this period. Examining Eurostat figures on bed-nights over a longer accommodation in the tourism industry, some 80-90% of such
period of time shows even more clearly how unusual developments accommodation options in Reykjavík are unlicensed and therefore
in Iceland are. In fact, Iceland is virtually unrivalled among major not covered by Statistics Iceland figures. The sharing economy
European countries in this regard.The number of bed-nights has is discussed more fully in Section “Accommodation through the
risen by nearly 3.67 million since 2010, or 122%, which translates sharing economy growing rapidly”.
to an annual growth rate of 17.3%. Annual growth in bed-nights
Figure 31. % change year-on-year in sold bed-nights, Jan-Oct 2015
25%
20%
15%
10%
5%
0%
Spain
Cyprus
Austria
Netherlands
Iceland
Belgium
Romania
Slovakia
Czech Republic
Croatia
Slovenia
Macedonia
Poland
Norway
Sweden
Hungary
Denmark
EU
France
Germany
Italy
Malta
Portugal
Greece
Source: Statistics Iceland, Eurostat
sold to Icelanders measures 3% and sales to foreign nationals

Figure 32. Bed-nights sold to foreign nationals, by type of
17%. In comparison, however, the number of tourists visiting
accommodation
the country has grown by 22.4% per year since 2010. The fact
that tourists numbers have outpaced bed-nights sold to foreign
nationals indicates that travellers are either shortening their stay 8.4
or using unlisted accommodation not included in Statistics Iceland
figures. Such unlisted bed-nights could be due to accommodations
6.4 32%
through the sharing economy, including stays in privately owned
housing, stays with friends or relatives, and so on. Furthermore, the 5.2
number of bed-nights per tourist has declined since 2010. 31%
4.3
32% 38%
3.6
Non-hotel accommodation growing rapidly; a third 3.0 32% 38%
32% 35%
of overnight stays in “unlisted” accommodation 29%
33%
36% 34%
The Icelandic Tourist Board has surveyed foreign tourists’ length 33% 31% 30%
35% 34% 35%
of stay over a period of several years. Based on these surveys, the
average length of stay in Iceland is 6.6 nights. Multiplying this figure 2010 2011 2012 2013 2014 2015
by the number of tourists who come each year gives an estimated
total number of foreign travellers’ bed-nights in Iceland, and from Hotels Other listed accommodation
this it is possible to estimate the number of unlisted bed-nights. We Unlisted accommodation
estimate that listed bed-nights accounted for about 68% of total
Source: Statistics Iceland, ÍSB Research
overnight stays by foreign nationals in 2015, with the remaining
Regional Iceland gains ground

The increased weight of foreign nationals in overnight For example, 70% of all bed-nights in regional Iceland were sold
accommodation is driven by regional Iceland, as can be seen rather during these three months, as opposed to 33% in greater Reykjavík.
clearly in Figure 33. Examining the greater Reykjavík area reveals If bed-nights were distributed equally over the year, the three
that since 2010, the share of bed-nights sold to foreign nationals summer months would account for 25%, but because most people
has remained relatively stable at around 89%. It was also around this travel during these months, it is natural that they should weigh more
level during the pre-crisis years, indicating that the share of bed- heavily than others. Seasonality is therefore not a problem in the
nights sold to foreigners has long been high in greater Reykjavík. greater Reykjavík area.
In regional Iceland, the areas closest to greater Reykjavík generally Outside the capital area, however, it is. Progress has been made,
sell a larger share of bed-nights to foreign nationals than those and the share of bed-nights in the peak summer season has
further away. The Suðurnes peninsula has a relatively large share fallen from 78% in 2010 to 70%, but this is not enough. Seasonal
in comparison with other areas, selling 80% of bed-nights to fluctuations are greatest in the West Fjords, East Iceland, and
foreigners in 2015. South Iceland is next, at 77%, an increase of 25 Northwest Iceland, where the share of bed-nights sold in June, July,
percentage points since 2000. The share of guest accommodation and August lies in the 78-82% range.
sold to foreigners in West Iceland, Northwest Iceland, and the West
Fjords has soared in the recent term, with the percentage of bed- Figure 34. Number of bed-nights (in millions) and seasonal
nights sold to foreign nationals rising by 30, 24, and 19 percentage fluctuations, by region
points, respectively, since 2010. In West Iceland, Northwest Iceland,
% share of all sold bed-nights
and the West Fjords, the share has risen above 50% only recently
(either in 2011 or in 2012); therefore, until then, more than half of 2010 2015
6.7
bed-nights in these areas were sold to Icelanders. The increased
impact of foreign tourists on regional Iceland is therefore obvious.
45%
58%
Seasonality still a problem in regional Iceland 3.9
42%
Figure 34 shows the distribution of sold bed-nights by season and 3.0 2.9 30%
region. Of the 6.67 million bed-nights sold nationwide in 2015, 2.82 60% 55%
36%
40% 1,8 67%
million, or 42%, were in the capital area. In regional Iceland, there 70%
1,2 22%
were 3.85 million bed-nights sold, or 58% of the nationwide total. 64%
About 55% of all bed-nights sold nationwide were in June, July, 58% 78%
42% 33%
and August, and the share of accommodation sold during these
three months is much higher in regional Iceland than in the greater
Greater Reykjavík
Regional Iceland
Nationwide
Greater Reykjavík
Regional Iceland
Nationwide
Reykjavík area.
1
Figures on sold bed-nights for all guest accommodation locations by month in 2015
were not available from Statistics Iceland at the time this report was written. As a result,
the seasonal distribution is assumed to have been the same in 2015 as in 2014. It can
therefore be assumed that seasonal fluctuations were less pronounced in 2015 than is Jun-Aug Other months
indicated in Figure 34. Source: Statistics Iceland
Figure 33. Proportion of bed-nights sold to foreign nationals, by region
100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
Greater Reykjavík Reykjanes Nationwide South Iceland East Iceland West Iceland Northwest Iceland Northeast Iceland West Fjords
2000 2004 2010 2011 2012 2013 2014

Less seasonal volatility and higher

occupancy rates closer to the capital
South Iceland has the largest number of sold bed-nights, at Figures on sold bed-nights for all guest accommodation locations
1.2 million, or 18% of the nationwide total for 2015. Northeast by month in 2015 were not available from Examining occupancy by
Iceland and East Iceland rank second and third, with 13% and 9%, months in 2010 and 2015 shows how rates have risen in all regions.
respectively. Over the summer months, the increase has been largest in the
Suðurnes peninsula and smallest in North Iceland. In other months,
Data on occupancy for all types of accommodation in 2015 were occupancy has improved most in the greater Reykjavík area and the
not available at the time this report was written; therefore, hotel Suðurnes peninsula, and least in East Iceland and North Iceland.
occupancy figures are used as a reference. The data show clearly
that the regions with the highest occupancy rates are also those The number of tourists visiting the country has long had a
with the smallest seasonal fluctuations: greater Reykjavík and the decisive impact on both the hotel market and the market for other
Suðurnes peninsula. In the capital area, the hotel occupancy rate accommodation, but in the past five years, that impact has grown
was 78.8%, as opposed to 64.5% for the Suðurnes peninsula. noticeably stronger, and the market has grown at a speed previously
Occupancy has also increased most in these regions since 2010: unheard of. Statistics Iceland’s figures on sold bed-nights show
by 23.5 percentage points in greater Reykjavík and by 24.2 points in that, during the period from 2000 through 2010, just over 79% of
the Suðurnes peninsula. Occupancy rates are lower in the regions bed-nights were sold to foreign nationals. In 2011 this percentage
with greater seasonal fluctuations; i.e., West Iceland, the West began to rise, and by 2015, foreign guests accounted for nearly 89%
Fjords, North Iceland, and East Iceland. of all bed-nights sold. In 2015, hotels accounted for 2.96 million
Mynd 35. Number of bed-nights (in thousands) and seasonal fluctuations in regional Iceland, by region
% share of all sold bed-nights
18%
1.198
13%
34% 890
9%
28% 623
66% 22% 6%
392 4% 4% 3%
72% 32% 287 238
78% 221
49% 18% 22%
68% 78%
51% 82%
South Iceland Northeast East Iceland West Iceland Reykjanes West Fjords Northwest
Iceland
Iceland
Jun-Aug Other months
Figure 36. Hotel occupancy in 2015, by region
78.8%
64.5%
55.3%
52.6%
44.7% 41.3%
40.3% 38.8% 37.3%
32.5%
29.1% 27.4%
Greater Reykjavík Suðurnes South Iceland West Iceland North Iceland East Iceland
& West Fjords
2010 2015 Source: Statistics Iceland

Figure 37. Hotel occupancy in 2010, by month and region Figure 38. Hotel occupancy in 2015, by month and region
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Jan Feb Mars Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mars Apr May Jun Jul Aug Sep Oct Nov Dec
Total East Iceland Greater Reykjavík Total East Iceland Greater Reykjavík
North Iceland South Iceland North Iceland South Iceland
Reykjanes West Iceland & West Fjords Reykjanes West Iceland & West Fjords
Source: Statistics Iceland Source: Statistics Iceland
sold bed-nights, an increase of nearly 650,000, or 28.1%, year- The number of sold hotel bed-nights per tourist declined in
on-year. Bed-nights sold to Icelanders declined by just over 6,500 2011, 2013, 2014, and 2015; therefore, tourists are increasingly
in 2015, while sales to foreign nationals increased by 655,000. using other forms of accommodation. This accords with the
It is clear, then, that foreign tourists account entirely for growth developments portrayed in Figure 32, which shows that hotels’
in the hotel market in 2015. These figures show incontrovertibly share of total bed-nights declined during these same years.
how the growth of the hotel market is driven by the rise in tourist
visits to Iceland.
Figure 39. Number of hotel bed-nights nationwide and per tourist
3.0 2.4
2.5 2.3
Bed-nights, millions
2.0 2.2
1.5 89% 2.1

85%
1.0 83% 83% 2.0
77% 78% 81% 80% 82%
79% 79%
0.5 80% 1.9
0 1.8
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Icelanders Foreign nationals Bed-nights per tourist (right)
Source: Statistics Iceland, Icelandic Tourist Board

The capital area hotel market

The number of available hotel rooms has never grown as strongly
in a single year as it did in 2015. According to Statistics Iceland, Figure 40. Hotel occupancy, by month
872 new rooms were added during the year, most of them due to
the opening of Foss Hotel Reykjavík, the Kea hotels, Hótel Skuggi, 100%
and Hótel Storm. The company Miðbæjarhótel opened Hótel 90%
Miðgarður, and Hótel Vellir opened in Hafnarfjörður. Several hotels 80%
Occupancy rate, %
began building, adding on new rooms, among them Hótel Klettur 70%
60%
and Hótel Marina. The number of rooms available in the greater
50%
Reykjavík area rose by 26.3% in 2015, the largest increase ever
40%
recorded. In spite of this extraordinary historical growth in hotel 30%
rooms, the number of tourists grew proportionally more in 2015, 20%
or by 30.2%, and the hotel room occupancy rate rose from 77.6% 10%
to 78.8% as a result. 0%
Júlí
Mar
Aug
Sep
Oct
Nov
Dec
May
Feb
Apr
Jan
Jun
Seasonal peaks in occupancy continue to even out
2003 2006 2010
Seasonal fluctuations in foreign tourists’ visits to Iceland have begun 2014 2015
to even out, and the impact on hotel room occupancy has been
positive. This makes investment in the hotel market more profitable
than it would be otherwise. But considerable seasonality remains,
particularly in hotels outside the greater Reykjavík area. There is
good cause to ponder possible ways to smooth out the seasonal Figure 41. Hotel bed-nights sold, greater Reykjavík
peaks and troughs so that investments will be better utilised.
Historically, the hotel market has been subject to considerable 200,000

180,000
seasonal volatility. Occupancy rates have risen as high as 90% in
160,000
summer and fallen as low as 30% in winter. In the past four years, 140,000
occupancy has improved greatly over the winter months. There are 120,000
examples of capital area hotels that are nearing tolerance limits for 100,000
most of the year. 80,000
60,000
Investment in the hotel sector has grown strongly in recent years, in 40,000
tandem with increased demand. But investing in hotel construction 20,000
is time-consuming, and supply responds to changes in demand with 0
Feb
Jan
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
a certain lag. As can be seen, occupancy rates during the winter –

such as February and March – are now similar to peak summertime
rates. This is a radical change from the previous situation. In March 1998 2002 2007 2011
2010, for instance, the occupancy rate was 53%, while in March 2012 2013 2014 2015
2015 it was 84.8%.
It takes a longer time to bring an idea for a hotel to fruition than it
does to realise the idea of taking a holiday. It is partly because of this
that excess demand for accommodation has developed – demand
that has been met by the sharing economy, among other things. The
sharing economy has functioned to an extent as a countercyclical
agent, absorbing the enormous number of tourists who have come
to Iceland in the recent past.
The number of hotel rooms increased by 217 in 2014 and by 874 in

2015. The number of bed-nights sold in the greater Reykjavík area
grew commensurably. Occupancy rates remain high, rising above
90% during the summer.
Are there enough hotels in the capital area?

In order to assess whether the supply of hotel rooms will rise in line
Figure 42. Number of new hotel rooms per year in Reykjavík and
with demand, it is necessary to pair the number of new rooms being
estimates from 2016 onwards
planned (change in supply) with the estimated increase in tourists
(change in demand). If our forecast materialises, over 1.6 million
tourists will come to Iceland in 2016, an increase of 29% year-on- 1,000
year. On the other hand, an estimated 290 new hotel rooms will
be available in 2016, an increase of 5.8% in the total supply. As a
result, it is likely that for yet another year, the increase in supply will
800
not keep pace with demand. Therefore, two things will happen: the
occupancy rate will rise in 2016, and a larger percentage of tourists
will seek out non-hotel accommodation.
600
The figure 42 shows the number of new hotel rooms that are
projected to become available in the next few years. The estimate
is based on press releases and conversations with operators in the
400
hotel market. It is estimated that through 2019, a total of 2,450
new hotel rooms will be built, provided that all planned projects are
completed. The total investment for these projects is more than
ISK 55bn. It should be borne in mind that these hotel rooms are at 200
various stages of construction, and it is not at all certain that all of
them will be built, as this requires that planning authorities approve
changes in zoning where necessary and that financing be obtained. 0
About 298 new hotel rooms are scheduled to become available in
2018
2019
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2016, or 66% fewer than became available in 2015. Hotel-related
investment in 2016 is estimated at ISK 20.2bn, or 7.5% of projected
business investment for the year. (200)
Figure 43. Investment in greater Reykjavík hotels Figure 44. Estimated additional hotel rooms in greater Reykjavík
in coming years (ISKbn) in coming years
55.2 2,450
798 810
20.2 20.2 544
11.6 298
20.2
3.2
2016 2017 2018 2019 Total
2016 2017 2018 2019 Total
Source: Statistics Iceland, ÍSB Research Source: Statistics Iceland, ÍSB Research
Pressure for new hotels likely to increase

We expect the number of tourists visiting Iceland this year to Occupancy rates at greater Reykjavík hotels have been very
outpace the rise in the number of new hotel rooms. We estimate favourable in the recent term. If the aforementioned forecast
that 1,397 new rooms are needed in order to absorb this increased materialises, hotel occupancy will rise to a historical peak in 2016.
demand and maintain unchanged occupancy rates; however, as is A large number of hotel rooms are planned for the capital area in
mentioned above, only 298 new rooms are expected this year. This the next four years, and developments in the number of tourist
indicates that construction will satisfy only 21% of the demand. For visits to Iceland over that period will remain the major determinant
simplification purposes, no consideration is given to other forms of of whether it is financially sound to build at any given time.
accommodation; furthermore, it is assumed that foreign tourists’
travel habits will remain unchanged in all other respects. This will
doubtless lead to a rise in hotel occupancy rates and to increased
demand for other types of accommodation. For example, it will
stimulate growth in the sharing economy and put even greater
pressure on house prices in the areas most frequented by tourists.
Figure 45. Number of new rooms needed to meet the increase in tourists in 2016
Average number Number of rooms

needed in 2016 New rooms on the market in 2016
of beds per
room 1,014 rooms 298 rooms
2.09 beds Increase in tourists 2016
»
365,962 people
»
Occupancy, bed-nights
per hotel room » 716 rooms »
1.70 bed-nights Number needed in 2016
Unchanged occupancy
» to maintain year-2015
occupancy rate » Sold bed-nights
since 2015 per tourist
78.71% occupancy 1.35 nights
»
»
»
Supply of bed-nights Supply of bed-nights

needed to maintain this needed to satisfy
occupancy rate increased 494,049
627,652 nights per year demand nights per year
Bed-nights per
room per year 365 nights
Where is the capital area hotel market

headed in coming years?
In order to estimate the next few years’ developments in the capital In view of the uncertainty about growth in tourist numbers in coming
area hotel market more accurately, three scenarios are used, based years, it is interesting to examine the hotel market’s sensitivity to
on differing assumptions concerning developments in key factors. tourist numbers. According to Scenario I, occupancy and average
Scenario I assumes that the rise in tourist numbers will remain hotel room prices will continue to rise for the next two years and
strong but that the proportional growth rate will ease somewhat in then decline in 2019. Under this scenario, the supply of hotel rooms
coming years. This scenario provides for the construction of 2,450 will not satisfy demand; therefore, tourists will continue to seek out
new hotel rooms over the next four years. Scenario II assumes that other types of accommodation. Scenario I assumes that for all
the number of tourists will decline in 2017, which could occur if years, hotel occupancy rates in the capital area will remain high,
the tourism sector sustains some sort of shock, such as a natural average prices will be high, and the sharing economy will grow.
disaster or an economic downturn. Scenario III assumes that According to Scenario II, it is assumed that investors will respond
growth in the number of tourist visits will slow markedly in coming by cutting back on hotel investment. It can also be assumed that
years, much more so than is assumed in Scenario I. average hotel prices will fall in tandem with declining occupancy
rates, making hotel accommodation a more competitive option
Given the accumulated increase in both hotel rooms and tourist
for tourists than it would otherwise be. The market would adjust
visits since 2003, according to Scenario I, the number of tourists to circumstances to a large degree, thereby cushioning against
will rise well in excess of the supply of hotel rooms. According to the contraction in tourist numbers. According to Scenario III, hotel
Scenario III, the increase in these two variables is better aligned. occupancy rates can be expected to reach equilibrium at around
75%, assuming that all hotels currently planned are built.
Figure 46. Scenario I - Accumulated growth in tourists Figure 47. Scenario II - Accumulated growth in tourists
and hotel rooms from 2003 and hotel rooms from 2003
100% 100%
800% 800%
600% 600%
400% 400%
200% 200%
0% 0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Increase in number of tourists Increase in number of hotel rooms Increase in number of tourists Increase in number of hotel rooms
Source: Statistics Iceland, Icelandic Tourist Board, ÍSB Research Source: Statistics Iceland, Icelandic Tourist Board, ÍSB Research
Scenario I - Strong growth 2016 2017 2018 2019 Total

Rise in number of tourists % 29% 25% 20% 15%
Rise in number of tourists 365,962 406,975 406,975 366,278 1,546,190
Rise in number of hotel rooms 298 544 798 810 2,450
Tourists per room 1,228 748 510 452 631
Figure 48. Scenario I - number of new rooms and occupancy Figure 49. Scenario I - estimated impact of changes in
rates occupancy and average daily rate on hotel revenues
1.000 90% 140 100%

80% 120
800 80%
70% 100
60%
600 60% 80
50% 40%
400 60
40% 20%
40
200 30% 20 0%
20% 0 -20%
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
10%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-200 0%
Number of new rooms Tourists per room Average daily rate (EUR) Occupancy rate, % (right)
Occupancy rate, % (right) Impact on hotel revenues, % (right)
Scenario II - Contraction 2016 2017 2018 2019 Total

Rise in number of tourists, % 29% -5% 4% 4%
Rise in number of tourists 345,053 -341,859 -6,186 73,985 70,993
Rise in no. of hotel rooms 298 544 798 100 1,740
Tourists per room 1,158 (628) (8) 740 41
Figure 50. Scenario II – number of new hotel rooms Figure 51. Scenario II - estimated impact of changes
and occupancy in occupancy and average daily rate
1.000 90%
140 100%
80%
800 120 80%
70%
100 60%
600 60%
50% 80 40%
400
40% 60 20%
200 30% 40 0%
20% 20 -20%
0
10% 0 -40%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-200 0%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Number of new hotel rooms Tourists per room
Average daily rate (EUR) Occupancy rate, % (right)
Occupancy rate, % (right)
Occupancy rate, % (right)
Scenario III - Modest growth 2016 2017 2018 2019 Total

Rise in number of tourists % 29% 15% 10% 4%
Rise in number of tourists 365,962 244,185 187,209 82,372 879,727
Rise in no. of hotel rooms 298 544 798 810 2,450
Tourists per room 1,228 449 235 102 359
Figure 52. Scenario III - number of new hotel rooms per year Figure 53. Scenario III - estimated impact of changes in
and relationship to occupancy occupancy and average daily rate on hotel revenues
140 100%
1.000 90%
120 80%
80%
800 60%
70% 100
600 60% 80 40%
50% 60 20%
400
40% 40 0%
200 30% -20%
20
20%
0 0 -40%
10%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-200 0%
Number of new hotel rooms Tourists per room Average daily rate (EUR) Occupancy rate, % (right)
Occupancy rate, % (right) Impact on hotel revenues , % (right)
The historical relationship between

average price and occupancy
Examining the relationship between occupancy and average price The hotel market in Reykjavík is therefore more volatile than that
of hotel rooms in the greater Reykjavík area as shown in historical in other Nordic capitals. Furthermore, a larger proportion of Nordic
data reveals a strong correlation between changes in occupancy hotel guests are domestic customers and a larger proportion are
and average price. When occupancy rates lie in the 30-60% range, business travellers and conference attendees, whose travel is not
average prices remain broadly unchanged. If occupancy ranges as subject to seasonal fluctuation as tourist travel is.
between 60% and 80%, however, there is a strong correlation
between changes in occupancy and average price. In this range, a Figure 54 illustrates the relationship between occupancy and
change of +/- 1% in occupancy is generally associated with a rise/ average room rates in the greater Reykjavík hotel market. The
fall in average price of about ISK 330 (EUR 2.3). When occupancy interaction between these two variables grows more sensitive when
rates fall, hotel operators have a tendency to lower prices in order occupancy rates are high; therefore, changes in occupancy affect
to bring them back up. By the same token, there is a tendency to average prices more strongly when the occupancy rate is high than
raise prices when occupancy rises. In Stockholm, Copenhagen, and when it is low.
Oslo, changes in occupancy have a less marked impact on average
prices. In Stockholm, average prices change by EUR 0.5 for each
International comparison
percentage point change in occupancy. In Copenhagen, average Eurostat compiles figures on sold hotel bed-nights in EU countries.
prices change by EUR 0.6, and in Oslo they change by EUR 0.3. In comparison with 28 countries in the EU, Iceland stands out with
a larger proportional month-on-month increase in sold bed-nights
The relationship between hotel occupancy and average prices
on an annualised basis.
in Nordic capitals
According to Eurostat data for 2014, among the Nordic countries,
As Figure 55 indicates, the relationship between occupancy and
seasonal variability in sold bed-nights is greatest in Iceland.
average room rates is weaker in other Nordic capitals than in
Reykjavík. This suggests that price steering is more effective in In the greater Reykjavík area, seasonal fluctuations in occupancy
Iceland, which could be because seasonal fluctuations are more have diminished since 2011, whereas they have remained broadly
pronounced and there is a greater need to reduce prices during off- unchanged over the same period in the other Nordic capitals.
peak periods and raise them again during the peak season.
Figure 54. Relationship between occupancy and average daily rate (ADR) in Nordic capitals, in EUR
180
160
140
120
100
80
60
40
20
0
30% 40% 50% 60% 70% 80% 90% 100%
Reykjavík, average rate Stockholm, average rate Copenhagen, average rate Oslo, average rate
Linear trend Linear trend Linear trend Linear trend
Source: Statistics Iceland, Benchmarking Alliance, ÍSB Research

Figure 55. Month-on-month % change in sold bed-nights, 2009-2015
50
40
30
20
10
0
-10
Jan 2009
Jul 2009
Jul 2010
Jan 2011
Jul 2011
Jan 2012
Jul 2012
Jan 2013
Jul 2013
Jan 2014
Jan 2015
Jul 2015
Jul 2014
Jan 2010
-20
EU 28 Iceland Source: Statistics Iceland, Eurostat
Figure 56. Seasonal fluctuations in hotel occupancy rates, 2011 Figure 57. Seasonal fluctuations in hotel occupancy rates, 2015
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Stockholm Copenhagen Stockholm Copenhagen

Oslo Reykjavík Oslo Reykjavík
Source: Statistics Iceland, Benchmarking Alliance Source: Statistics Iceland, Benchmarking Alliance
Figure 58. Seasonal fluctuations in sold bed-nights, 2014
25
20
15
10
0
Sweden Denmark Norway Iceland Finland

Source: Statistics Iceland, Benchmarking Alliance
Figure 59. Annualised % change in number of rooms in each month
35
30
25
20
15
10
5
0
-5
Jan 2011
Mar 2011
May 2011
Jul 2011
Sep 2011
Nov 2011
Jan 2012
Mar 2012
May 2012
Jul 2012
Sep 2012
Jan 2013
Mar 2013
May 2013
Jul 2013
Sep 2013
Nov 2013
Jan 2014
Mar 2014
May 2014
Jul 2014
Sep 2014
Nov 2014
Jan 2015
Mar 2015
May 2015
Jul 2015
Sep 2015
Nov 2015
Nov 2012
Stockholm Copenhagen Oslo Reykjavík
Data from Benchmarking Alliance show that, among Nordic capitals, Average hotel room prices fluctuate more in Reykjavík than in the
the increase in available hotel rooms in 2015 was greatest by far in other Nordic capitals. As is mentioned above, this highlights the
Reykjavík. The second-largest spike in hotel room availability was in more pronounced seasonality and price steering in the Icelandic
Copenhagen during the period 2011-2012. hotel market than in the other Nordic markets. The average off-
peak price was around EUR 60 in 2011 and is now in the EUR 80-
The average price, or average daily rate (ADR), has risen more in 100 range. Over the same period, the average peak price has risen
Reykjavík than in the other capital cities in recent years. The ADR from approximately EUR 110 to EUR 167. The peak season ADR in
in Reykjavík has risen from EUR 80 to EUR 119 since 2011, or by Reykjavík is therefore considerably higher than that in other Nordic
49%. At the same time, hotel occupancy in Reykjavík has risen from capitals.
63.8% to an average of 78.8%, or 15 percentage points.
Table 1. Average daily rate (ADR), Reykjavík hotels Figure 60. ADR by month from 2011 onwards
Average hotel 2011 2015 % change 180
Rooms 100 100 0 160
ADR in EUR 80 119 49 140

120
Average occupancy 63.8% 78.8% 23
100
Exchange rate 153 140 -8
80
Bed-nights sold 23.290 28.747 23
60
Accommodation 1,863,193 3,420,951 84
revenues in EUR 40
Accommodation 285,068,579 478,933,084 68 20

revenues in ISK 0
Jan 2011
Apr 2011
Jul 2011
Oct 2011
Jan 2012
Apr 2012
Jul 2012
Oct 2012
Jan 2013
Apr 2013
Jul 2013
Oct 2013
Jan 2014
Apr 2014
Jul 2014
Oct 2014
Jan 2015
Apr 2015
Jul 2015
Oct 2015
Source: Statistics Iceland, Central Bank of Iceland, Benchmarking Alliance
Reykjavík Stockholm
Copenhagen Oslo
Source: Benchmarking Alliance

Figure 61. Average hotel occupancy rates in selected years Figure 62. ADR in selected years
90
80 140
70 120
60
100
50
80
40
30 60
20 40
10
20
0
Reykjavík Stockholm Copenhagen Oslo 0
Reykjavík Stockholm Copenhagen Oslo
2011 2012 2013
2014 2015 2011 2012 2013
2014 2015
Average occupancy in Reykjavík hotels has risen in recent years and

Figure 63. Average hotel RevPAR in selected years
is now close to 80%. It has risen sharply in Copenhagen as well and
is now similar to that in Reykjavík.
120
Comparing revenue per available room (revPAR) across Nordic
capitals reveals that revPAR has risen most in Reykjavík since 2011, 100
or by 83%. RevPAR in Reykjavík has risen from the lowest in the
80
Nordic region in 2011 to the highest. In Copenhagen it has risen by
39% since 2011, while in Stockholm it has grown only marginally 60
and in Oslo it has declined slightly. RevPAR is the metric that is most
used to estimate the profitability of hotel operations. 40
20
0
Reykjavík Stockholm Copenhagen Oslo
2011 2012 2013

2014 2015

Accommodation through the sharing

economy growing rapidly
The increase in tourist numbers has created increased demand Figure 64. Number of listed accommodations
for hotel rooms and other types of accommodation. Some of
the demand for accommodation is met with space in residential
housing, which is offered through the sharing economy. Because
investment in hotels and guesthouses has not kept pace with
the growth in visitor numbers – particularly in the most popular 3,000
destinations, such as greater Reykjavík – there has been scope for 2,500
strong growth in the sharing economy in the recent term. 2,000
1,500
Accommodation listings on Airbnb
1,000
up 126% in less than a year
500
As of end-November 2015, a total of 2,681 properties in Reykjavík
0
were listed on Airbnb, as opposed to 1,188 in December 2014, an
Feb 2015
Apr 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2015
May 2015
Dec 20 14
Mar 2015
Jun 2015
Jan 2015
increase of 126% in less than a year. Of the 2,681 accommodations -500
listed in November, 1,944 were classified as active. Active listings
are categorised as is shown in Table 2. Most spaces on offer are
defined as one-room flats, followed by single rooms. In the latter Month-end listings New listings
case, the renter does not have private use of the flat but rents a Delistings
single room within it. Only 34 properties are defined as a common Source: Airdna
area, such as a sofa-bed in the living room. More than three out of
four listings are two-room flats or single rooms. Figure 65, which
shows the location of most of the listings, indicates that the majority Table 2. Airbnb accommodation in greater Reykjavík, by type
are in downtown Reykjavík and neighbourhoods nearby..
Bed-nights sold through Airbnb about 20% of sold hotel Type of Single family Multi-family Other Total
accommodation home home
bed-nights
Common area 5 3 26 34
Over the twelve-month period beginning in November 2014, a total
Single room 131 270 71 472
of 89,500 nights were sold through Airbnb in properties listed in
Studio apartment 15 91 7 113
Reykjavík. If it is assumed that the number of guests was in line
with the permissible maximum in each instance, the number of 1-room apartment 22 513 15 550
bed-nights sold over this twelve-month period is estimated at 2-room apartment 26 414 10 450
357,600. In comparison, 1,782,000 hotel bed-nights were sold 3-room apartment 49 167 9 225
in the capital area over the same period. Bed-nights sold through
4+ room apartment 56 35 9 100
Airbnb therefore equal about 20% of hotel bed-nights sold in greater
Reykjavík. Figure 64 shows the distribution of sold bed-nights over Total 304 1.493 147 1.944
the period from October 2014 through November 2015, by month.
Source: Airdna
2
Flats are defined as active or inactive by Airbnb Data Analytics (Airdna) in accordance with
specific criteria, including when the listing was last updated, when the flat was last listed as
available for rent and when it was last rented out, and how quickly customers’ queries are
answered. A flat is defined as inactive if it no longer appears on the website, if information
on availability dates has not been updated for two months, or if the landlord’s response to
queries is poorer than 20% over a specified period.
3
A bed-night is defined by Statistics Iceland as follows: each guest who stays overnight is
counted each night he/she is present.
33% of peak season bed-nights sold via Airbnb

Over the twelve-month period beginning in November 2014, the In 2015, about 60% of all bed-nights sold through Airbnb were sold
most bed-nights sold through Airbnb were in August, or 63,200. In during the four-month period beginning in June. The occupancy
comparison, 189,000 bed-nights were sold in capital area hotels in ratio of Airbnb spaces is also the highest over this four-month
August 2015; therefore, the number of bed-nights sold via Airbnb period. Occupancy during the period shown in Figure 66 peaked
was about a third of those sold in hotels during the same month. The in August 2015 at 69%.
ratio of Airbnb bed-nights to hotel bed-nights is therefore higher
during the peak season. This is hardly surprising, given that about
half of all tourists come to Iceland at that time. Hotel occupancy
4
The occupancy rate is the number of days a guest space is rented out over a given period
is also highest during the peak season, making it difficult for divided by the number of days it was advertised for rent over the same period.
hotels to meet demand. This stimulates demand for other types of
accommodation, including residential housing via Airbnb.
Figure 65. Location of Airbnb listings in greater Reykjavík
Source: Airdna
Sold bed-nights more than trebled in October 2015 Figure 66. Number of sold bed-nights and occupancy rates
In October 2015, the number of bed-nights sold [via Airbnb] was
up by about 22,000 year-on-year. The increase measured 225% 70,000 80%
and the number of sold bed-nights more than trebled. Occupancy 60,000 70%
rates rose by some 10 percentage points year-on-year in October
60%
2015. During that same month, the increase in bed-nights sold in 50,000
50%
greater Reykjavík hotels measured 29% year-on-year. The sharing 40,000
economy is therefore growing more rapidly in the capital area than 40%
30,000
the hotel sector is. 30%
20,000 20%
Total Airbnb revenues about 15% of hotel revenues 10,000 10%
0 0%
During the twelve-month period beginning in November 2014, total
Oct 2014
Apr 2015
May 2015
Jul 2015
Aug 2015
Oct 2015
Jun 2015
Dec 2014
Jan 2015
Sep 2015
Mar 2015
Feb 2015
Nov 2014
revenues deriving from Airbnb-listed accommodation in Reykjavík
amounted to ISK 2.22bn. Capital area hotels’ revenues over the
same period totalled ISK 14.5bn. Revenues generated via Airbnb
over those twelve months therefore totalled just over 15% of hotel Sold bed-nights Occupancy rate (right)
revenues for the same period. Bed-nights sold through Airbnb Source: Airdna, ÍSB Research
amount to about 33% of sold hotel bed-nights over the same
period. It is therefore clear that each bed-night sold through Airbnb Figure 67. Revenues from accommodation sold via Airbnb
generates less revenue. Revenue per sold Airbnb bed-night can be in Reykjavík
seen in Figure 67.
450 16,500
Over the four months beginning in June 2015, revenues from
400
Airbnb listings totalled ISK 1.35bn, or 61% of total revenues for the 16,000
350
twelve-month period. In comparison, capital area hotels’ revenues 15,500
300
from June 2015 onwards amounted to 51% of total revenues for
250 15,000
the same twelve-month period. Therefore, seasonality is more of a
200 14,500
factor in the Airbnb market than in the hotel market.
150
14,000
In October 2015, total revenues through Airbnb rose by ISK 100
115m year-on-year, or 202%. Revenues have therefore grown 50 13,500
proportionally less than bed-nights over the same period, as each 0 13,000
night was less expensive, on average, in October 2015 than in the
Oct 2014
Apr 2015
May 2015
Jul 2015
Aug 2015
Oct 2015
Jun 2015
Dec 2014
Jan 2015
Sep 2015
Mar 2015
Feb 2015
Nov 2014
same month in 2014. Therefore, revenues more than trebled over

this period without any price increases, and growth is driven entirely
by an increase in the number of visitors, indicating how rapidly this
Total revenues (ISK bn)
market has expanded.
Revenues per night sold (ISK thousands, right axis)
Source: Airdna
Average length of stay via Airbnb 3.3 nights
Figure 68. Average length of stay of Airbnb guests, by month
The average length of stay among Airbnb guests is 3.3 nights, and
stays are generally longer during the colder months of the year. This 4.5
accords with the results of the survey conducted by the Icelandic 4.0
Tourist Board among foreign visitors to Iceland, which indicate that 3.5
3.0
40.4% of tourists stay 3-4 nights in the greater Reykjavík area.
2.5
2.0
1.5
1.0
0.5
5
Based on the USDISK exchange rate as of 21 January 2016.
0
Oct 2014
Apr 2015
May 2015
Jul 2015
Aug 2015
Oct 2015
Jun 2015
Dec 2014
Jan 2015
Sep 2015
Mar 2015
Feb 2015
Nov 2014
Length of stay Average

Source: Airdna
The car rental market

The car rental market has expanded rapidly in recent years, as rented vehicles. As regards the regulatory environment, since 2010
private cars are one of tourists’ main means of transport in Iceland, there have been a virtually uninterrupted series of amendments
and the rental fleet must keep pace with the rise in tourist visits. made to the laws and regulations governing car rental operations.
The fleet does not necessarily expand in line with the number of For the most part, the changes centre on reduced excise taxes on
tourists in any given year, but the two variables do track one another new vehicles purchased by rental agencies, but the amount of the
over longer periods of time. If there is a discrepancy between the tax reduction has been raised and lowered by turns, fees qualifying
number of tourists and the size of the fleet at any given time, rental agencies for the excise tax reduction have been introduced, and so
agencies have other ways of adapting; for instance, by increasing on. Amendments to the Government’s fiscal budget proposal for
car utilisation, although this is possible only to a degree and is not 2016 were announced, capping the excise tax reduction at ISK
desirable for long periods. 500,000 per new car purchased, whereas the previous maximum
had ranged up to ISK 1,250,000. The licensing fees entitling
Actually, it can be considered normal that growth in tourist numbers agencies to the excise tax relief ranged from ISK 1,750,000 to ISK
and expansion of the rental fleet should not correlate in real time, 6,750,000, but have now been abolished, two years after they were
as expanding the rental car fleet is an expensive investment. Such imposed. But it should be noted that the tax concession providing
an investment must be well prepared and financed, and in the past for reduced excise taxes on new cars is subject to numerous and
five years, forecasts of year-on-year growth in tourist numbers have stringent conditions, including requirements concerning ownership
been such that market agents have probably been cautious so as to and use of the vehicles concerned. Furthermore, this does not mean
avoid overinvestment based on unrealistic expectations. This may that rental agencies pay no excise tax on the vehicles they purchase.
be about to change, however. In this context, it is worth mentioning On the contrary: they pay some tax on most of the cars they buy.
that while the rental fleet expanded relatively little between 2013
and 2014 (by 7%, as opposed to a 24% increase in tourist numbers),
it jumped between 2014 and 2015, almost keeping pace with the Active car rental agencies on the rise
rise in tourist visits (26% versus 30%). This is probably due to both The number of operating permits issued to car rental agencies
expansion and renewal, as the need for both had probably become trebled between 2003 and 2014, rising from 51 to 151. This
acute by that time. Furthermore, the experience of the past five correlates almost exactly with the rise in tourist visits, which has
years has shown that forecasts of growth in tourist numbers have also trebled over the same period. It therefore appears that there
been realistic – relatively modest, if anything – so that operators is a strong correlation between the two variables in the long run,
have begun to trust that the forecasts will materialise and have been although in individual years there are discrepancies that could stem,
willing to invest accordingly. for instance, from expectations of strong tourist traffic – as in 2010,
But tourists are not car rental agencies’ only customers, as the for example – and a rise in the number of operators seeking to serve
market for rental to Icelanders is also growing. Such cases often that market.
involve long-term leasing to firms, institutions, and individuals, Given this correlation, it would have been appropriate to expect
although there is some short-term rental as well. This is more a significant increase in operating licenses in 2015, as tourist
often the case with larger rental agencies, as most of the smaller numbers were projected to grow and new car rental agencies
ones rely almost entirely on the tourist market. Car rentals’ revenue could be expected to open their doors. But the number of agencies
flows fluctuate in line with this; i.e., there is still a marked seasonal was virtually unchanged between 2014 and 2015, rising from
pattern among all rental agencies, although it is less pronounced for 151 to 152. The number of licence holders was therefore broadly
operators that also rent to Icelanders. Fortunately, however, tourist unchanged since 2013, when there were 149 licensed car rental
traffic has grown more even throughout the year, and wintertime agencies.
car rental has become more common than it used to be. As a result,
revenue flows in the car rental market are less subject to seasonal
peaks and are more tenable on an annual basis.
The years since 2009 have been volatile ones for operators in the
rental car market, largely because of natural disasters and changes
in the regulatory framework. Clearly, the Eyjafjallajökull eruption in
2010 affected car rental agencies as it did others. The initial impact
was negative, but later on the advertising value of the eruption
appears to have compensated for it. Another eruption took place in
Grímsvötn in 2011, and that same year the bridge over the Múlakvísl
river collapsed during a sub-glacial outburst flood, destroying a
part of Route 1, the so-called Ring Road that many tourists travel in
Figure 69. Developments in number of operating permits and number of tourists via KEF
225 1,700
1,600
200 1,500
1,400
175 1,300
1,200
150 1,100
1,000
125 900
800
100
700
75 600
500
50 400
300
25 200
100
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
Number of tourists Number of operating permits
Source: Icelandic Tourist Board, Icelandic Transport Authority
These numbers do not necessarily tell the whole story, however,

Figure 70. Number of active operators, by fleet size
as not all licence holders are active in the market. Therefore, it is
useful to determine how many licence holders actually have rental
cars registered to them and to compare these data between 2014
and 2015. This gives an indication of the change in the number 18.1%
of verifiably active operators in the market. Such an examination
reveals that of the 152 entities licensed to operate car rental 111
agencies in 2015, only 111 have at least one vehicle registered to 94 19.2%
them according to the motor vehicle register. Of those, only 49-62 14.0%
have operations of any size, with 10-20 vehicles registered in their 62 21.7%
names. 52 49
43
Figure 70 shows the number of operators with one or more cars, 10 23 28
or more, 20 or more, and 50 or more, together with a comparison
between 2014 and 2015. Furthermore, this could explain why there 1 vehicle + 10 vehicles + 20 vehicles + 50 vehicles +
was virtually no increase in the number of licence holders between
2014 and 2015, in spite of the rise in tourist numbers. It could be 2014 2015 Increase
that there was some thinning in the sector, with inactive licence
Source: Icelandic Transport Authority
holders dropping out of the market and new ones taking their place.
The number of tourists visiting Iceland is projected to rise by 29%

between 2015 and 2016, and it is not unlikely that the number of
car rental agencies will rise as well. Whether this affects the number
of issued licences is unclear, however, because as is mentioned
above, inactive operators could drop out and be replaced by new
ones. It is quite likely, though that the number of active rental
agencies will rise during the year.
The rental car fleet

Strong growth in rental fleet in 2015
An estimated 4,756 rental cars were on the road in Iceland during
the peak season in 2006. The number began to grow rapidly after Figure 71. Number of registered rental vehicles
2009, and by 2014 there were 12,179 rented vehicles on the road.
The rental fleet was forecast to grow to just over 14,000 but actually
20.000
expanded to 15,401 as of 13 August 2015. This equates to a 26%
19.000
increase year-on-year, versus a 30% increase in the number of 18.000
foreign tourists travelling through Keflavík Airport. 17.000
16.000
As is mentioned above, this jump between 2014 and 2015 is 15.000
apparently due to an accumulated need for expansion and renewal. 14.000
Given the developments in tourist numbers over the past few 13.000
12.000
years, the rental fleet would have needed to grow faster and be
11.000
renewed more at certain points in time – between 2013 and 2014, 10.000
for instance – but because this was not done, there was greater 9.000
strain on the cars, owing to increased mileage driven and higher 8.000
utilisation rates. As a result, rental agencies were forced to expand 7.000
more between 2014 and 2015 in order to maintain their fleet and 6.000
5.000
provide service to the increased number of customers. 4.000
3.000
It is assumed that the fleet will expand by about 20% in 2016, to a 2.000
peak of nearly 18,500 vehicles during the summer. The number of 1.000
tourists visiting Iceland is expected to rise by 29%. If these forecasts 0
materialise, the number of tourists and the rental car fleet will both
2016F
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
have quadrupled since 2006.
The rental car fleet has grown more rapidly than the nationwide fleet
of private vehicles; therefore, the number of rental cars relative to
the total passenger car fleet has risen somewhat in recent years.
Table 2 . Proportion of rental vehicles to total passenger vehicle
Rental cars accounted for 2.4% of all passenger vehicles in Iceland
fleet
in 2006 and 6.8% in 2015. Rental cars as a share of all passenger
cars had therefore nearly trebled over this period. If the size of the Model Rentals Total Percentage
rental fleet develops as forecast in 2016 and the total nationwide
passenger vehicle fleet grows as it has in recent years, the ratio of 2006 4,756 197,305 2.4%
rental cars to the total fleet will rise still further, to about 7.5-8.0%. 2007 4,843 207,513 2.3%
This is close to our estimate (8.3%) of the ratio of tourists to total
2008 5,649 209,740 2.7%
inhabitants at any given time.
2009 5,736 205,338 2.8%
It is still cause for concern that listings of rental agencies’ cars in the
motor vehicle register are often incorrect. A large number of cars are 2010 6,572 204,736 3.2%
listed in the motor vehicle register as belonging to rental agencies, 2011 7,888 206,112 3.8%
although they actually are not rentals. This includes cars that were 2012 9,641 210,070 4.6%
once part of the rental fleet but, upon being sold, have not been
2013 11,418 213,113 5.4%
transferred from the rental register to the private vehicle register.
Official data show 18,290 rental cars as of 13 August 2015, but of 2014 12,179 217,454 5.6%
that total, 2,077 are registered to individuals and another 812 are 2015 15,401 226,321 6.8%
clearly not rentals even though they are registered to legal entities.
The result is therefore that there were 15,401 correctly registered Source: Icelandic Transport Authority, Statistics Iceland
rental cars and 2,889 incorrectly registered.
The twenty largest agencies own

85% of the rental fleet
In our last Tourism Industry Report, we included a list of the number These figures do not include agencies that list their cars
of vehicles owned by the 10 largest agencies in the market in 2014. anonymously in the motor vehicle register, which means that batch
For 2015, this list has now been expanded to include the 20 largest runs from the register, like that used for this study, do not name
operators and a comparison between 2014 and 2015. The survey them as owners or operators of the vehicles concerned. A total of
shows that of the 15,401 rental cars in the fleet, 13,076, or 84.9%, 757 cars are registered anonymously, but most of them belong to a
are owned by the 20 largest operators in the market, up slightly single rental agency and the others belong to a number of smaller
from 2014, when 84.5% of the fleet was owned by the largest agencies.
operators. The share owned by the very largest rental agencies
appears to have declined between years, but by a hardly discernible
margin. On the whole, most agencies appear to be growing in line
with the overall year-on-year growth in the fleet. However, this
is not necessarily an accurate indicator of market share, which
also depends on many other factors, including fleet utilisation.
Table 4. Distribution of the car rental fleet among the 20 largest rental agencies
Name of rental agency Number 2014 Share of total Number 2015 Share of total
Bílaleiga Akureyrar / Europcar 3,333 27.40% 3,842 24.90%
Avis / Budget 1,781 14.60% 2,063 13.40%
Hertz 1,455 11.90% 1,778 11.50%
Sixt 687 5.60% 1,049 6.80%
Dollar / Thrifty 587 4.80% 758 4.90%
Blue Car Rental 272 2.20% 495 3.20%
Bílaleiga Reykjavíkur 319 2.60% 406 2.60%
Procar 305 2.50% 397 2.60%
Green Motion Iceland 159 1.30% 395 2.60%
Enterprise / Red 127 1.00% 305 2.00%
SAD Cars 207 1.70% 273 1.80%
Rent Nordic 224 1.80% 270 1.80%
CC bílaleiga 192 1.60% 229 1.50%
Route 1 Car Rental 120 1.00% 134 0.90%
SS bílaleiga 128 1.10% 134 0.90%
Átak 100 0.80% 123 0.80%
Hasso Iceland 69 0.60% 120 0.80%
Lagoon Car Rental 0 0.00% 115 0.70%
KúKú Campers 85 0.70% 110 0.70%
Icerental 4x4 45 0.40% 80 0.50%
13,076 84.90%

Rental fleet dominated by recent-model cars
On average, 50% of the vehicles owned by Iceland’s 10 largest

Table 5. Age distribution of rental car fleet
rental agencies were new in summer 2015, although the pace at
which agencies in this group renewed certainly varied – some had
over 70% new cars and others closer to 30%. Model Number Percentage
2015 6,027 39.1%
On the whole, Iceland’s nationwide rental fleet is relatively new, 64%
2014 1-2 yr 3,898 25.3%
although some of the cars are rather old. About 64% of the total fleet
consisted of one- to two-year-old cars in summer 2015, and 87% 2013 1,659 10.8%
were five years old or less. The other 13% of the rental fleet – 2,064
vehicles – were more than five years old, and 958 of these (6% of 2012 1,234 8.0%
87%
the fleet) were more than 10 years old. 1-5 yr
2011 519 3.4%
Of the entire fleet of passenger cars in the country, however, only 2010 321 2.1%
13-15% are five years old or less. 2009 95 0.6%
Car rental agencies are under no restrictions as regards the age of 2008 231 1.5%
their vehicles. It is only required that the cars be in good condition 2007 267 1.7%
94%
and meet the demands generally made of them. The vehicles must 1-10 yr
2006 192 1.2%
be listed as rentals in the motor vehicle register and must undergo
an annual inspection, as all cars do, but they are not subject to any 2005 246 1.6%
6%
more monitoring than other vehicles. 10 yr +
2004 159 1.0%
2003 120 0.8%
2002 74 0.5%
2001 77 0.5%
2000 and older 282 1.8%
15,401 100.0%

Most common makes

Iceland’s rental car fleet includes a number of makes, although a
Table 6. Distribution of car rental fleet by type
few of them constitute the majority. Agencies own at least 1,000
each of the six most common makes,
Type Number Percentage
If these makes are traced to the dealerships that sell them, it is
TOYOTA 2,441 15.8%
possible to determine roughly how much of the rental fleet each
dealership supplies. It should be noted, though, that the figures SUZUKI 2,096 13.6%
do not indicate each dealership’s share in new car sales to rental
HYUNDAI 1,587 10.3%
agencies but only the number of vehicles from each dealership that
are part of the rental car fleet at a given point in time. Furthermore, VOLKSWAGEN 1,417 9.2%
some imports circumvent domestic dealers; therefore, not all SKODA 1,157 7.5%
vehicles have entered the market via direct sale from the dealership
in question. which account for a combined 63.7% of the total fleet. KIA 1,117 7.3%
FORD 770 5.0%
CHEVROLET 719 4.7%
Figure 72. Car dealerships’ share of total rental fleet
NISSAN 703 4.6%
RENAULT 472 3.1%
DACIA 359 2.3%
2% 4% BL
7% OPEL 328 2.1%
23%
Hekla
MITSUBISHI 206 1.3%
7% Toyota
MERCEDES-BENZ 209 1.4%
Suzuki
SUBARU 184 1.2%
9% Askja
JEEP 182 1.2%
Brimborg
19% MAZDA 171 1.1%
Bílabúð Benna
14% CITROEN 156 1.0%
Bernhard
Other
HONDA 150 1.0%
16%
PEUGEOT 116 0.8%
LAND ROVER 192 1.2%
DODGE 103 0.7%
AUDI 102 0.7%
SSANGYONG 55 0.4%
VOLVO 55 0.4%
Conventional energy sources still dominant Other 354 2.3%
According to our last Tourism Industry Report, the Icelandic rental 15,401 100.0%
car fleet was powered by conventional energy sources; i.e., 99.9% of Source: Icelandic Transport Authority
vehicles were petrol- or diesel-powered. This has changed very little
between years, and nearly all rental cars are equipped with petrol Figure 73. Distribution of car rental fleet by energy source
and diesel engines, although diesel vehicles have gained slightly at
the expense of petrol vehicles.
It is unsurprising that rental cars should rely on conventional 57.9% 56.7%

energy sources, as there is little incentive for agencies to shift 43.1%
42.0%
from fossil fuels to alternative energy sources such as electricity or
methane. One of the main hindrances is the lack of charging and
filling stations for electric or methane-powered cars, particularly 0.2%
0.1%
in regional Iceland; furthermore, there is no financial incentive for
agencies to shift from conventional to alternative fuels. 2014 2015 2014 2015 2014 2015
Petrol Diesel Other

This does not mean the fleet is not growing more environment-
Table 7. Rental car emissions on the decline
friendly, however. Diesel and petrol engine technology has been
advancing rapidly in recent years, and cars are now more fuel-
efficient and emit less CO2 than before. Examining average CO2 Model Average Fee category Listed CO2
emissions by vehicle age (year of model) reveals a continuous CO2 emissions
decline in emissions as cars grow younger. Average emissions from emissions
A 0-80
the entire fleet are 150g of CO2, with one- to three-year-old cars 1998 233
well below that average. This average level of emissions would place B 81-100
the fleet as a whole in CO2 emissions category E as defined by the 1999 201
C 101-120
authorities. 2000 218
D 121-140
2001 210
Investment, turnover, and labour force E 141-160
2002 212
F 161-180
Car rental agencies are extremely investment-intensive, as they
2003 228
rely entirely on the purchase and regular replacement of their G 181-200
fleet. As regards purchase patterns, agencies are shifting towards 2004 212
H 201-225
buying cars more evenly throughout the year, owing in large part to 2005 210
improved seasonal distribution of tourist visits to the country. The I 226-250
2006 197
spring remains a peak buying time, however, while sales of used J Over 250
2007 205
rental cars usually take place in autumn and winter.
2008 200
ISK 22bn in vehicle purchases in 2016 2009 167
2010 177
Iceland’s ratio of rental cars to sold new cars ranged from 5-25%
from 1999 through 2009 and then jumped in 2010, and from 2010 2011 169
through 2015 rentals accounted for 42% of sold new cars. In 2015 2012 154
the ratio rose slightly, to 43%. The outlook for 2016 is for this pattern 2013 150
to continue, with rental cars accounting for about 43% of sold new
2014 143
vehicles.
2015 140 Source: Icelandic Transport Authority
Figure 74. Number of vehicles sold and rental cars as percentage of total sold
9% 11%
20,000 12%
5% 43%
8% 43%
15,000 12%
12%
23% 43%
10,000 13% 43%
13% 39%
45%
5,000 56%
25%
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
Individuals and firms Car rental agencies Source: Icelandic Transport Authority
About 15,300 new passenger cars were sold in 2015, about 6,600
of them to rental agencies. In 2016, car sales are estimated at Figure 75. Car rental agencies’ turnover (ISK bn)
17,500, including about 7,500, or just under 43%, sold to rental
agencies. This does not include imports that circumvent domestic 24.4%
car dealers and are registered in Iceland as used cars. In 2015, for
35 22.7%
instance, some 1,250 vehicles, including 350 rental cars, entered
30 20.3%
the market in this way.
25 26.1%
The average price for a new rental car in 2015 was just under ISK 42.9%
20
3m exclusive of value-added tax, which means that rental agencies 20.6%
9.6%
15
invested roughly ISK 19.5bn in motor vehicles last year, a rather
large percentage of total turnover in the sector. Sales projections 10
for 2016 indicate that rental agencies’ investment in cars will 5
approach ISK 22.5bn, or 8.4% of total business investment for the 0
year, according to our forecast. This figure represents only direct
2008
2009
2010
2011
2012
2013
2014
2015
investment in the fleet itself. Other investments include tyres, spare
parts, fuel, and the housing and other facilities needed for a growing Turnover Increase
fleet and operations. Car rentals are subject to the highest value-
added tax rate, and all things considered, the sector generates
substantial direct and indirect revenues for the Treasury.
In the immediate future, the outlook for the car rental market
Turnover has quadrupled since 2008 appears strong. If forecasts concerning tourist numbers are borne
out, demand for rental vehicles will be strong enough that there
Turnover in the car rental sector has risen sharply in recent years,
will be sufficient need for an expanding fleet – and perhaps more
in line with growth in overall activity. According to figures from
than enough work on hand for operators, as they undertake the
Statistics Iceland, turnover has quadrupled since 2008, to ISK 33bn
investment needed to expand their fleet and acquire the necessary
in 2015.
facilities for it.
About 900 employed in the rental sector The main foreseeable risks, perhaps, relate to the resale of used
rental cars in the general market. It is difficult to project where the
It is difficult to determine exactly how many people are directly threshold lies; i.e., when the fleet has grown large enough that the
employed in the car rental sector, as itemised records of this type are domestic market ceases to absorb the number of cars that must be
not maintained. It is safe to say, however, that the number of people sold off each year to accommodate renewal. As yet, however, there
employed in the sector has grown in line with the level of activity are no signs that this threshold will be reached in the near future.
and rises to seasonal peaks during the summer. It is estimated that
as many as 900 people currently work in the car rental business. If the tourism industry sustains a major shock – such as a natural
disaster or an economic contraction – that causes a steep drop in
tourist visits, car rental agencies could suffer just as other operators
Prospects are good
in the sector would, but it is difficult to say how much change must
As is described above, the rental car business has grown by leaps take place in order for the entire tourism industry to suffer. Car rental
and bounds in recent years, as has the tourism industry as a activities rely on large-scale investment, and if business is too weak
whole, and there have inevitably been growing pains as well. Today, to sustain that investment for a period of time, rental agencies could
however, many car rental companies are financially strong and face difficulties. On the other hand, it should be noted that operators
enjoy economies of scale to a greater degree than before. Until now in the sector have grown financially stronger in recent years and are
there have been few mergers in the sector; instead, each operator better able to withstand shocks, and they should be able to adapt to
has been able to expand alongside the market, although this is not change in a relatively short time.
always easy in such an investment-intensive business. Mergers
are unlikely to occur in the market until the long-term equilibrium
number of tourists can be determined.
7
Figures are based on industry classification 77.11 and preliminary figures for January-
October 2015, plus estimates for November-December 2015, exclusive of VAT.
Shocks to the tourism industry

Iceland’s tourism industry has grown faster in recent years than
Figure 76. % change in tourist arrivals worldwide and global
most other sectors of the economy. Tourism has driven a large
GDP growth
part of the economic recovery that began in 2010 and has grown
commensurably in its importance to the economy. This increase
10 6
in importance can be seen in a number of ways, not least in the
generation of foreign currency, where tourism is now the country’s 5
leading sector. The industry’s ability to generate foreign currency 5 4
is much greater than in most other economies. Tourism has also
3
grown markedly in its importance to the labour market, as the
sector is relatively labour-intensive. It has therefore played a large 0 2
part in reversing the post-crisis spike in unemployment. 1
2016F
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
The increased importance of tourism to the Icelandic economy -5 0
has diversified both the country’s foreign exchange revenues and % change in tourist arrivals % change in GDP growth (right)
the general economy. This should enhance economic stability in
Source: World Tourism Organization, International Monetary Fund
the long run. On the other hand, increased activity in the tourism
industry has made the Icelandic economy more vulnerable to shocks
to the sector. Such shocks could take many forms, including natural
disasters and economic downturns or crises. Other examples are Figure 77. % change in tourist arrivals in Iceland and worldwide
geopolitical shocks and terrorist attacks. Research on the impact
of terrorist attacks shows that the effects are quite localised and 30
temporary, and that the tourism industry’s recovery time from such
25
attacks is growing shorter. There are several recent examples of
this in neighbouring countries. In Iceland, however, experience is 20
concentrated in economic shocks and natural disasters. In general, 15
shocks to the tourism industry teach the lesson that the sector 10
must always be prepared for them and that development should
5
be carried out so as to distribute the risk of shocks as widely as
possible. 0
-5
2016F
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Tourism sensitive to the business cycle
The global economic recession in 2008 is a recent example % change in tourist arrivals worldwide
showing clearly how a worldwide economic downturn can affect % change in tourist arrivals in Iceland
tourist numbers and the tourism industry in general. After more
Source: Icelandic Tourist Board, World Tourism Organzation, ÍSB Research
than 6.5% growth in the number of international travellers and
5.7% global GDP growth in 2007, growth in tourism measured only
1.9% and GDP growth only 3.1% in 2008. GDP growth was broadly Figure 78. Number of tourist arrivals in Iceland and worldwide
flat in 2009, and the number of travellers declined by 4.0%. The
contraction was greater in the number of travellers to developed 1500
economies, particularly the US and Europe, where the banking
crisis made the most impact. It surfaced in all segments of tourism, 1000
but particularly in business travel.
500
In line with increased global GDP growth, tourist numbers began to
rise again in 2010. The number of travellers grew by 6.6% and GDP 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F
growth measured 5.4%. In Iceland, there was weak growth in tourist

numbers in 2008, followed by a contraction in both 2009 and 2010.
The contraction came on the heels of relatively swift growth in the Tourist arrivals in Iceland (thousands)
number of travellers to Iceland during the pre-2008 upswing, much Tourist arrivals worldwide (millions)
of it due to business travel. Source: Icelandic Tourist Board, World Tourism Organzation, ÍSB Research
8
http://www3.weforum.org/docs/TT15/WEF_Global_Travel&Tourism_Report_2015.pdf
The global economic outlook has been deteriorating in the recent

Figure 79. American tourist arrivals in Iceland and real USD
past. For example, according to the International Monetary Fund’s exchange rate
(IMF) January forecast, GDP growth will be 0.2 percentage points
weaker in 2016 and 2017 than was assumed in the Fund’s October 110
300,000
forecast. Nonetheless, the IMF projects that GDP growth will pick
up, measuring 3.4% this year and 3.6% next year, up from 3.1% in 250,000 105
2015. Furthermore, the World Tourism Organization forecasts 4.4% 200,000
growth in the number of international travellers this year. Among 100
the economies that produce the most visitors to Iceland, the IMF 150,000
95
expects the US economy to grow somewhat more rapidly this year 100,000
and next year than in 2015. The Fund expects GDP growth to be 90
50,000
broadly unchanged year-on-year in the UK and slightly stronger in
Germany. On the whole, the IMF forecast indicates that GDP growth 0 85
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
in the home countries of the majority of Iceland’s tourists will remain
relatively unchanged year-on-year or pick up slightly in comparison
to 2015. Alongside this, oil prices have fallen steeply in the recent American tourist arrivals in Iceland via KEF (left)
term. Lower oil prices have created the scope for reduced airfares Real USD exchange rate (index, right axis)
and tend to increase households’ purchasing power by lowering Source: World Bank, Icelandic Tourist Board
their petrol and oil costs. This functions as a spur to travel.
The interplay between global economic developments and tourism instance, in the surge in the number of Icelanders travelling abroad
in Iceland underlines the importance of developing a tourism sector during the recent rise in the real exchange rate of the ISK. For
based on a broad spectrum of visitors from a number of different example, Icelanders’ overseas travel has increased by 77% since
economies. This will reduce the likelihood that an economic shock 2009, yet the real exchange rate has been rising over that period.
in one economy will wreak havoc on the Icelandic tourism sector. Furthermore, growth in tourist visits to Iceland has been greatest
among people from economies with a rising real exchange rate,
including the US and the UK, where the real exchange rate of the
Currency exchange rates: a major domestic currency has been on the rise. Tourists from the eurozone
determinant of travel patterns have increased in number as well, but to a much lesser degree.
Tourism is strongly affected by developments in the real exchange
rate. The impact can be felt in the number of travellers, the length
of their stay, and their spending while at their destination. The real Figure 80. Icelanders’ overseas departures and real ISK
exchange rate of the ISK has risen considerably during the tourism exchange rate
upswing of recent years. In terms of relative consumer prices, in
Q4/2015 the real exchange rate of the ISK was 37% above its 500,000 120
post-crisis trough in 2008. Since then, the rise in the real exchange 110
rate has doubtless cut into the number of tourists visiting Iceland, 400,000
100
particularly those who are most price-sensitive. Nevertheless, the 90
300,000
number of tourists visiting Iceland has grown enormously at the
80
same time as the real exchange rate has been rising. 200,000
70
The effect of the real exchange rate on tourists’ travels and spending 100,000 60
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
is more complex than would first appear. Research carried out by

the IMF shows that changes in the real exchange rate of a tourist’s
home country often have as much impact as changes in the real Icelanders’ departures via KEF (left)
exchange rate of the destination country. This can be seen, for Real ISK exchange rate (index, right axis)
Source: World Bank, Icelandic Tourist Board

In addition, the euro has been depreciating against the US dollar,

Figure 81. Exchange rate of the ISK vs the USD and EUR
and many American tourists stop over in Iceland on their way to
the eurozone. In those cases, it is possible that the decline in the 160
euro vis-à-vis the dollar is the determining factor and the rise in
150
the real exchange rate of the ISK is less important. In this context,
research shows that the number of tourists and their length of stay 140
is less sensitive to fluctuations in the real exchange rate in small 130
economies than in larger ones. This probably applies in cases
120
where American travellers to Europe schedule a stopover in Iceland.
110
1.2.2014
3.2.2014
5.2.2014
7.2.2014
9.2.2014
11.2.2014
1.2.2015
3.2.2015
5.2.2015
7.2.2015
9.2.2015
11.2.2015
1.2.2016
Actually, a number of important economic factors apart from the real
exchange rate in the home country are at work here: alongside the
rise in the real exchange rate, the overall economy and households’
position in the home country are usually improving. Icelandic USD EUR
Source: Central Bank of Iceland
households’ financial position has improved markedly since 2009,
and not only from the standpoint of the factors measured by the
real exchange rate, but also as regards assets, household debt,
unemployment, and labour participation. Improvements in these Figure 82. British tourist arrivals in Iceland and real GBP
areas have enabled a larger number of Icelanders to travel overseas. exchange rate
The same can be said of both British and American households,
albeit to varying degrees. 300,000 105
The growth of the Icelandic tourism sector makes the domestic 250,000 100
economy more sensitive to economic developments in tourists’ 95
200,000
home economies. For instance, the upswing in the US and UK
90
doubtless plays a part in the recent tourism boom in Iceland. By 150,000
85
the same token, a downturn in these countries could have a strong
100,000
impact on Icelandic tourism and could affect the Icelandic economy 80
more than has been seen previously. 50,000
75
The rise in the number of American and British tourists visiting 0 70

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Iceland in recent years is larger than can be explained by economic

developments, including the real exchange rate. A total of
243,000 American tourists came to Iceland in 2015, as opposed British tourist arrivals in Iceland via KEF (left)
to 40,000 in 2008. This is a nearly 500% increase, whereas the Real GBP exchange rate (right)
real exchange rate of the US dollar has risen by about 23% over
Source: Icelandic Tourist Board, Central Bank of Iceland
the same period. The increase in flight availability and destinations
in air travel between Iceland and both the US and other countries
is certainly a major factor. Furthermore, Iceland has been widely depreciation against the euro. That said, such a development would
advertised abroad, including in the US. For example, the proportion affect the flow of American travellers to Iceland and, given the large
of Americans who fly to Europe has risen from 0.3% in 2008 to 1.9% proportion of Americans among tourists in Iceland – nearly one in
in 2015. In a manner of speaking, Iceland as a travel destination five in 2015 – would affect the sector. The same applies to the UK:
has increased its market share in Americans’ travel to Europe over if the UK economy should deteriorate and the real exchange rate
this period, which has seen an across-the-board rise in European of the pound sterling should fall, the number of British travellers to
travel by Americans. As a result, it unlikely that the Icelandic Iceland would be affected, as would the revenues they generate.
tourism sector would collapse if the US economy should weaken British nationals were the second-largest group of foreign visitors
or if the real exchange rate of the US dollar should fall because of a to Iceland in 2015, at 19% of all tourists.
Natural disasters: both a blessing and a curse

Because of Iceland’s geographical location, its tourism sector worldwide and the largest increase seen in Iceland in a quarter-
depends largely on air traffic. About 89% of tourists who visited century. The eruption had drawn international attention and
Iceland in 2015 came by air. The vast majority of this air traffic advertised Iceland and its natural environment as an interesting
is routed through Keflavík Airport. A large proportion of tourism travel destination. In this sense, the Eyjafjallajökull eruption marked
revenues also come from transporting passengers between Europe the beginning of the tourism boom that is unparalleled in Icelandic
and the United States, with an intermediate stop at KEF. As a result, history and has made tourism the important economic sector
Iceland’s tourism sector is more vulnerable to interruptions in air that it is today. Other factors have certainly contributed to this
traffic than that in many other economies where tourism is based development, but experience has shown that natural disasters such
on a range of transportation options. Iceland is situated on a hot as the Eyjafjallajökull eruption can be both a curse and a blessing for
spot on the divergent boundary between two tectonic plates on the tourism industry.
the Mid-Atlantic Ridge, where two large plates are moving away
from one another. This makes the country an active volcanic island.
Figure 83. Year-on-year change in tourist arrivals in Iceland,
As a result, Iceland is by nature a threat to air traffic. The volcanic
by month (%)
eruption at Eyjafjallajökull in the first half of 2010 is a reminder of
this and a recent example of the impact of such natural phenomena
50
on air traffic and tourism, both in Iceland and elsewhere.
The Eyjafjallajökull eruption caused a 1.1% contraction in tourist 30

visits to Iceland in 2010, whereas international travel worldwide
grew by 6.6%. The decline was most pronounced during the peak 20
of the eruption, in April and May 2010, when tourist numbers were
down 17.6% on an annualised basis. During this period, a portion 10
of Iceland’s air traffic was re-routed from KEF to other airports,
including Akureyri and Egilsstaðir. A number of international airlines 0
were affected by the eruption. Of airlines headquartered in Iceland,
Icelandair estimates that it lost 20% of scheduled flights and was
-10
forced to reschedule 180 flights. Iceland Express estimates that it
lost 100 flights as a result.
-20
May
Mar
Aug
Sep
Nov
Jun
Feb
Jan
Apr
Oct
Jul
The tourism industry did not record positive growth again until the
end of 2010. The following year saw a virtual tidal wave, however, 2010 2011
with visitor numbers up 15.7%, far in excess of the rise in tourism Source: Icelandic Tourist Board
Figures
Figure 1. Íslandsbanki corporate loan portfolio, by sector 2015
Figure 2. Number of visitors travelling through KEF (thousands)
Figure 3. Number of tourists travelling through KEF, by month (thousands)
Figure 4. Number of tourists, by season (thousands)
Figure 5. Share of tourists in each month, by nationality 2015
Figure 6. Number of UK and US tourists (thousands)
Figure 7. Number of tourists, by country (thousands)
Figure 8. Ratio of tourists to total inhabitants, yearly average
Figure 9. Number of tourists per km2
Figure 10. Number of tourists, by destination
Figure 11. Number of tourists per inhabitant
Figure 12. US tourists arriving in Iceland as a share of US citizens travelling abroad
Figure 13. UK tourists arriving in Iceland as a share of UK citizens travelling abroad
Figure 14. Number of airlines with scheduled flights via KEF
Figure 15. Seat utilisation
Figure 16. Flights to KEF, by country
Figure 17. Increase in flights and number of tourists since 2010, by country
Figure 18. Number of passengers, by airport (millions)
Figure 21. Card turnover of tourists
Figure 22. Card turnover balance (ISK bn)
Figure 23. Average payment card turnover per tourist, 2015
Figure 24. Tourists’ card turnover, by spending category (ISK bn, at 2015 price level)
Figure 25. Tourism as a share of total number of employed persons
Figure 26. Rise in number of employed, 2010-2015
Figure 27. Frequency of “Iceland” as a search string
Figure 28. The world’s most competitive tourist destinations
Figure 29. Bed-nights - nationwide total and total per tourist
Figure 30. Proportion of bed-nights sold to foreign nationals
Figure 31. % change year-on-year in sold bed-nights, Jan-Oct 2015
Figure 32. Bed-nights sold to foreign nationals, by type of accommodation
Figure 33. Proportion of bed-nights sold to foreign nationals, by region
Figure 34. Number of bed-nights (in millions) and seasonal fluctuations, by region
Figure 35. Number of bed-nights (in thousands) and seasonal fluctuations in regional Iceland, by region
Figure 36. Hotel occupancy in 2015, by region
Figure 37. Hotel occupancy in 2010, by month and region
Figure 38. Hotel occupancy in 2015, by month and region
Figure 39. Number of hotel bed-nights nationwide and per tourist
Figure 40. Hotel occupancy, by month
Figure 41. Hotel bed-nights sold, greater Reykjavík
Figure 42. Number of new hotel rooms per year in Reykjavík and estimates from 2016 onwards
Figure 43. Investment in greater Reykjavík hotels in coming years (ISKbn)

Figure 44. Estimated additional hotel rooms in greater Reykjavík in coming years
Figure 45. Number of new rooms needed to meet the increase in tourists in 2016
Figure 46. Scenario I - Accumulated growth in tourists and hotel rooms from 2003.
Figure 47. Scenario II - Accumulated growth in tourists and hotel rooms from 2003
Figure 48. Scenario I - number of new rooms and occupancy rates
Figure 49. Scenario I - estimated impact of changes in occupancy and average daily rate on hotel revenues
Figure 50. Scenario II – number of new hotel rooms and occupancy
Figure 51. Scenario II - estimated impact of changes in occupancy and average daily rate
Figure 52. Scenario III - number of new hotel rooms per year and relationship to occupancy
Figure 53. Scenario III - estimated impact of changes in occupancy and average daily rate on hotel revenues
Figure 54. Relationship between occupancy and average daily rate (ADR) in Nordic capitals, in EUR
Figure 55. Month-on-month % change in sold bed-nights, 2009-2015
Figure 56. Seasonal fluctuations in hotel occupancy rates, 2011
Figure 57. Seasonal fluctuations in hotel occupancy rates, 2015
Figure 58. Seasonal fluctuations in sold bed-nights, 2014
Figure 59. Annualised % change in number of rooms in each month
Figure 60. ADR by month from 2011 onwards
Figure 61. Average hotel occupancy rates in selected years
Figure 62. ADR in selected years
Figure 63. Average hotel RevPAR in selected years
Figure 64. Number of listed accommodations
Figure 65. Location of Airbnb listings in greater Reykjavík
Figure 66. Number of sold bed-nights and occupancy rates
Figure 67. Revenues from accommodation sold via Airbnb in Reykjavík
Figure 68. Average length of stay of Airbnb guests, by month
Figure 69. Developments in number of operating permits and number of tourists via KEF
Figure 70. Number of active operators, by fleet size
Figure 71. Number of registered rental vehicles
Figure 72. Car dealerships’ share of total rental fleet
Figure 73. Distribution of car rental fleet by energy source
Figure 74. Number of vehicles sold and rental cars as percentage of total sold
Figure 75. Car rental agencies’ turnover (ISK bn)
Figure 76. % change in tourist arrivals worldwide and global GDP growth
Figure 77. % change in tourist arrivals in Iceland and worldwide
Figure 78. Number of tourist arrivals in Iceland and worldwide
Figure 79. American tourist arrivals in Iceland and real USD exchange rate
Figure 80. Icelanders’ overseas departures and real ISK exchange rate
Figure 81. Exchange rate of the ISK vs the USD and EUR
Figure 82. British tourist arrivals in Iceland and real GBP exchange rate
Figure 83. Year-on-year change in tourist arrivals in Iceland, by month (%)
Tables
Table 1. Average daily rate (ADR), Reykjavík hotels
Table 2. Airbnb accommodation in greater Reykjavík, by type
Table 3. Proportion of rental vehicles to total passenger vehicle fleet
Table 4. Distribution of the car rental fleet among the 20 largest rental agencies
Table 5. Age distribution of rental car fleet
Table 6. Distribution of car rental fleet by type
Table 7. Rental car emissions on the decline
Disclaimer
This report was produced by Íslandsbanki hf.
The information in this report is based on publicly available data Reports and other information received from Islandsbanki are
and information from various sources deemed to be reliable. The intended for private use only.
information has not been independently verified by Islandsbanki
hf. (“Islandsbanki”) and Islandsbanki does not guarantee that the This material may not be copied, quoted or distributed, in whole
information is comprehensive or accurate. All views expressed or in part, without the prior written consent of Islandsbanki.
herein are those of the author(s) at the time of writing and may
change without notice. Islandsbanki holds no obligation to up- This report is a brief summary and does not purport to contain all
date, modify or amend this report or to otherwise notify readers available information on the subject covered herein.
or recipients of this report in the event that any matter contained
herein changes or subsequently becomes inaccurate. Regulator: The Financial Supervision Authority of Iceland
(www.fme.is)
This report is informative in nature and should not be interpret-
ed as a recommendation to take, or not to take, any particular United States
investment action. This report does not represent an offer or a Neither this report nor copies of this report may be distributed
solicitation to buy, sell or subscribe to any particular financial in- in the United States. Distributing the report in the United States
struments. may be a breach of applicable laws or regulations.
Islandsbanki accepts no liability for any potential losses or other Canada

consequences arising from decisions based on information in The information provided in this publication is not intended to be
this report. Any loss arising from the use of the information in distributed or circulated in any manner in Canada and should not
this report shall be the sole and exclusive responsibility of the be construed as any kind of financial recommendation or advice
investor. Before making an investment decision, it is important provided within the meaning of Canadian securities law.
to seek expert advice and to become familiar with the investment
market and different investment alternatives. Other countries
Laws and regulations of other countries may also restrict the dis-
Various financial risks are at all times present during investment tribution of this report.
activities, such as the risk of no yield or the risk of losing the
capital invested. International investments include risks related This summary does not constitute any solicitation of services by
to political and economic uncertainties as well as currency risk. Islandsbanki in the United States or Canada.
Each investor’s investment objectives and financial situation is
different. Past performance does not indicate or guarantee the For further information relating to this disclaimer see:
future performance of an investment. https://www.islandsbanki.is
Íslandsbanki Kirkjusandi 155 Reykjavík Iceland
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Tourism in Iceland 1

Issue date: February 29, 2016

Kristín Hrönn Guðmundsdóttir

Íslandsbanki and tourism

Figure 2. Number of visitors travelling through KEF (thousands)

Source: Icelandic Tourist Board, ÍSB Research

Figure 3. Number of tourists travelling through KEF, by month (thousands)

2003 2010 2011 2012 2013 2014 2015

Seasonal peaks continue to even out

scheduled events and favourable off-peak airfares have also

UK Japan All countries

Source: Icelandic Tourist Board

Americans outnumber the British

Board database does not contain more detailed information on

Figure 7. Number of tourists, by country (thousands)

300 56% 60%

200 37% 40%

Figure 8. Ratio of tourists to total inhabitants, yearly average

Figure 9. Number of tourists per km2

Source: World Bank, ÍSB Research

One of every thousand tourists

visitors, Iceland as a destination ranks 110th among the countries 6,0

Figure XX, after accounting for population.

Source: World Bank, Icelandic Tourist Board, Statistics Iceland

Figure 12. US tourists arriving in Iceland as a share of US citizens travelling abroad

Source: Icelandic Tourist Board, US Tourist Board

Iceland’s growing popularity among US and UK tourists

Figure 13. UK tourists arriving in Iceland as a share of UK citizens travelling abroad

Increased airline offerings:

According to information from Isavia, seven airlines offered 20

Strong impact from foreign airlines 82%

Foreign airlines’ decision to begin offering flights to Iceland

Figure 16. Flights to KEF, by country

Annual increase in flight offerings Annual increase in number

KEF Airport: increased investment need

Figure 18. Number of passengers, by airport (millions)

Los Angeles (LAX)

Hong Kong (HKG)

Passengers % change year-on-year

Tourism generates over a third of FX revenues

Source: Statistics Iceland, Central Bank of Iceland, ISB Research

Spending per visitor rises in 2015

card turnover from 2012 through 2014. Things changed in 2015,

2012 2013 2014 2015

-54 Source: Centre for Retail Studies, Central Bank of Iceland

Figure 23. Average payment card turnover per tourist, 2015

Misc. tourism services

Turnover: 11,186 Car rental and

Most spent on organised tours;

Petrol, car repair and

Public levies, etc.

2012 2013 2014 2015 Annual growth since 2012

Rapid job creation in tourism

Figure 25. Tourism as a share of total number Source: Statistics Iceland

Advertising value of the internet and social media

Figure 27. Frequency of “Iceland” as a search string

Figure 28. The world’s most competitive tourist destinations

Source: World Economic Forum

Substantial investment in tourism