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Icelandair: a successful niche strategy provides profits and growth

Analysis

Icelandair recently announced planned capacity increases for 2014, with two new routes to North America and one new route to Europe and additional frequencies on two North American and eight European routes. This will grow its international flight schedule by 18%, on top of 16% planned growth in 2013, and take Icelandair's international passenger number's to 2.6 million in 2014. Looking further out, it has ordered 16 Boeing 737 MAX aircraft to add to its fleet from 2018 to 2021.

Part of one of Europe's more profitable airline groups, Icelandair's success in recent years owes much to its use of its Reykjavik hub to capture passenger flows between North Europe and North America. However, the global financial crisis and the heavy losses of 2008 and 2009 remain fresh in the memory. Moreover, although its markets are relatively less penetrated by LCCs, the environment is likely to become increasingly competitive. In terms of unit costs, Icelandair is efficient, but not low-cost. It cannot afford to stand still in this respect.

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