Icelandair: great circles, sixth freedoms and low fuel prices support accelerating traffic growth

The Icelandair Group enjoyed another strong year in 2015. Double-digit capacity and traffic growth, load factor gains and low fuel prices helped to counter weak unit revenue, taking net profit up by two thirds compared with 2014. Its double-digit EBIT margin ranks it among Europe's more profitable legacy airlines.

The main engine of Icelandair's growth continues to be its sixth freedom connecting traffic between Europe and North America. Most world map projections make its Reykjavik hub look like a major detour as a stopover, but a casual look at a globe shows it is not far off the great circle routes between many destinations in the two continents. This connecting traffic strategy is supported by strong inbound tourist demand to Iceland.

In order to make one-stop routes attractive against direct flights, Icelandair must be price competitive. It has continued to grow its profits in spite of LCCs' taking an increasing share of seats to/from Iceland in recent years. However, unit revenue is likely to remain under strong downward pressure, particularly given a number of competitor route launches in 2016 and Icelandair's plans to accelerate capacity growth.