Isavia: Iceland placed to attract more tourists and future hub traffic


The Icelandic airports and ATC operator Isavia has just published its financial report for the first half of 2020.

In common with most others it makes for depressing reading, although not as much as those of some of its peers. It is clear that Icelandair remains its most important customer by far, despite the airline having to seek state assistance.

Moreover, in a robust statement Isavia says it is confident that tourists will begin to return to the country as soon as they start seeking ‘purity’ again, and that the national carrier will be in a better position even than it was in before, to transport passengers across the Atlantic Ocean through the Keflavik Airport hub as other airlines dither about resuming their own direct services.

In the meantime Isavia has had the responsibility of ensuring that Iceland’s far-flung citizens, few in number as they are, have been able to access the capital and other parts of the country. Its domestic airports have witnessed a faster resumption of seat capacity than the international Keflavik Airport.


  • Despite its travails, Icelandair, shorn of competition from WOW Air, has returned close to the position of dominance it once held at Keflavík Airport.
  • Just now though, Icelandair’s trans Atlantic network has shrunk, and its main focus is on Europe.
  • While international air services still operated Iceland ‘lost’ its high season this year – with tourism accounting for 10% of Iceland's GDP, it couldn’t afford to do that again.
  • Keflavík Airport is down to only five hours of concentrated activity each day.
  • Isavia’s revenue losses in 1H2020 were greater at Keflavík than at its other airports.
  • Isavia is surprisingly bullish about the future, specifically the return of tourists in big numbers and a resumption of Keflavík’s hub offer.
  • The domestic regional airports must be kept going, or the rest of the country would be cut off in winter.  

Despite a big increase in foreign airlines, Icelandair remains Isavia’s prime customer

Much has been reported on the impact of the pandemic on Icelandair, an airline that is highly dependent both on incoming tourism and sixth freedom transit operations to underpin its primary function of enabling Icelanders to travel abroad for business purposes and to visit relatives (and vice versa).

But while Icelandair had a virtual monopoly on air travel to and from the island until well into the late 1990s, that had not been the case since the infamous volcanic eruption of 2010 which, together with a collapse of the nation's currency (which afforded a very good exchange rate), put it firmly on the tourist map, attracting interest from across the world and boosting traffic from mature markets such as Europe and North America enormously. With that came a surge in airlines, both home-grown and foreign, to meet the exponential demand.

It is some of those airlines which are now helping to provide a vital lifeline to Iceland now that the national carrier, in some financial difficulty, has cut back on routes to sustain its viability. But the fundamental pecking order for international services to and from Iceland has not changed.

Headquartered at Reykjavík Airport, Isavia is the state-owned enterprise responsible for the operation and development of all airports in Iceland. The organisation also provides air traffic management services across the Icelandic control area, approximately 5.4 million sqkm in size.

Isavia is also responsible for flight safety. The airport and air traffic operator was established in May-2010 by the Minister of Transport, Communications and Local Government.

Keflavík the main/international airport, but its trans Atlantic route network has shrunk

The current route network at Isavia’s main airport (by far), the international gateway Reykjavik Keflavík Airport, which is some 50km from the capital, is shown below, although not all routes may be in the process of being operated in the week commencing 05-Oct-2020. (Not shown on the map is Seattle, an Icelandair route and the only North American route that does not connect to the U.S. east coast).

Reykjavik Keflavík International Airport: network map for the week commencing 05-Oct-2020

With the demise of WOW Air in 2019, Icelandair was at least left with a clear field within the country itself, with no local opposition. That has helped it return to a position of dominance that it has not held at Keflavík for several years.

The chart below is of the seat capacity share in the week commencing 05-Oct-2020.

Reykjavik Keflavík International Airport: airline seat capacity share, week commencing 05-Oct-2020

Interestingly, that market share of seats for Icelandair is identical to the one in the week commencing 01-Apr-2019, immediately after WOW Air ceased operations on 28-Mar-2019 after less than seven years in business, and which was referred to in the report:


Seat capacity by airline, Keflavík Airport, week commencing 01-Apr-2019

Can Icelandair survive the crisis?

The problem facing Isavia now is whether or not Icelandair can survive the crisis.

The group’s air services remain vital to ensuring Iceland’s economy does not collapse again, although its ground services (surface transport, tours, hotels etc.), on which, again, it had a monopoly 30 years ago, are not so crucial any longer owing to a huge increase in competition in all segments.

It has negotiated a government credit facility and increased its share capital by EUR140 million, but it isn’t out of the woods yet. Much depends on whether or not tourism gets going again – before the pandemic it accounted for more than 10% of Iceland's GDP and more than 40% of total exports of merchandise and services, making Iceland one of the most tourism-dependent countries on Earth.

From 2010 to 2017, when it started to level off, the number of tourists visiting Iceland annually increased by nearly 400%.

Iceland must get through a winter without tourists; another bad summer would be ruinous

But that prospect is not helped by the revelation that a recent spike in virus cases was brought about by the arrival of a group of French tourists.

Much is still 'up in the air', and to the airline's loss the annual Iceland Airwaves music festival  – which the airline sponsors and which takes place in mid November – was cancelled as long ago as two months because of the uncertainty about quarantine restrictions, and whether the (indoor) performances could go ahead, and under what regulations.

Moreover, and this is unheard of previously, some of the media in Iceland have been openly questioning Icelandair's value and asking “do we need it anyway?”

On the basis of that market share alone the answer is assuredly yes. With no rival airline likely to appear from within Iceland it would be very risky to leave the country’s route development to foreign airlines during the next few years. With the passing of time it is easy to forget what a monumental part in building the country’s fortunes is attributable to Icelandair and before it, Loftleiðir – both privately owned airlines.

Pandemic-attributed capacity fall not as drastic as in other countries

Iceland’s ‘COVID chart’ of seat capacity shows that it did not fall dramatically as with other countries in Mar-2020 and Apr-2020, mainly because Iceland tried to keep its tourism business going as the high season approached, and the country's virus case numbers have always been much lower than in other countries, due to early intervention and comprehensive testing.

What reduction there was, was driven as much by draconian quarantine regulations in other countries, but they did kick in in Iceland too. Currently there is a 14-day quarantine period for foreign arrivals from ‘risk areas’, with testing widely available on arrival and later, which can reduce it to five days.

Reykjavik Keflavík International Airport: weekly total seat capacity

Adventure tourism personified

None of this has prevented Icelandair from promoting ‘special offers’ on social media, and such is the nature of the country (there are many ways in which a visitor could be hurt or killed; from falling into a fast-flowing glacial river, to being blown up by a geyser, to slipping into the boiling lava of a volcanic crevice, to disappearing down one on a glacier, to being crushed in an earthquake [there was one of 5.6 magnitude 16km from Reykjavik on 20-Oct] just as happens with the local population) and the nature of the people who habitually visit it, that it is easy to get the feeling that as soon as there is a window of opportunity to reopen the country to foreigners without the need for quarantine, the government will do that.

The highest number of seats at Keflavík International Airport so far in 2020 was the 123,500 recorded in the week commencing 09-Mar-2020.

That figure bottomed out at 29,100 in the week commencing 15-Jun-2020 and is currently (the week commencing 05-Oct) 43,500, or 35% of the March 2020 total.

Grim statistics, but not the worst.

UK claims a place as the #1 market

One unusual statistic right now is that the United Kingdom is the country with the greatest number of seats in the network to and from Keflavík Airport, and by a margin of six percentage points from second-placed Germany. Denmark is the biggest Nordic country market but is much smaller.

Although the UK has always been a key market for Iceland the mature markets of Scandinavia have been more significant collectively, and the U.S. one had boomed since 2010 as many new routes were added, exceeding them all.

Now only Denmark of the other four Nordic countries is in the top ten of seats (and Copenhagen remains the largest single city market), while stiff regulations on entry and re-entry into the U.S. have reduced that market to the point where it is only the seventh largest.

Reykjavik Keflavík International Airport international: departing seats by country, week commencing 05-Oct-2020

At Keflavík Airport: only five hours of concentrated activity each day

The crisis has reduced Keflavík, an important small to mid sized hub, to just two ‘waves’ of activity each day.

In actuality that is what it was previously, with the overnight North American flights arriving from 0600, followed by an exodus to Europe in the following two hours, and then the reverse activity from 1400 as European flights arrive and North American ones depart.

Essentially the same scenario applies now, as can be seen for the chart for Monday 05-Oct-2020, below. But while European capacity is still fairly substantial, the mainly North American capacity (yellow from 0600, blue from 1400) is not.

Reykjavik Keflavík International Airport: seats per hour for 05-Oct-2020

Fewer rotations means Icelandair could possibly open new routes…but to where?

What this also means is that the average flight duration length ex Keflavík has reduced to 3 hours 45 minutes.

In Icelandair’s case that means it could possibly add new routes, since it has fewer rotations, but many of its routes are dependent on having trans Atlantic hub potential, especially as the winter schedules are soon to begin, and while tourism is hampered by regulation there seems little reason to do that anyway.

Accordingly, 23 of Icelandair's Boeing 757 variants are currently inactive, leaving an active fleet of just 12, of which three are turboprops used by its domestic subsidiary.

There are 10 aircraft on order, mainly 737 MAXs, to replace the ageing workhorses that are the 757s.

Icelandair Group fleet summary, week commencing 05-Oct-2020

So how has this impacted Isavia?

Isavia’s financials for 1H2020 are bad, but not that bad

Isavia’s financial report for the six months ended 30-Jun-2020 doesn’t make for easy reading, but it is not as bad as many others.



(EUR, million)

+/- comparable period in 2019





(-35.5 million)

Compared to an EBIT loss of -6.4 million in p-c-p

Net profit


Compared to a net loss of -17.0 million in p-c-p

Cash and cash equivalents


(PCP in 2019: 33.8)



(PCP in 2019: 13.8)

Equity ratio


(PCP in 2019: 41.6%)

As revenue halved, Isavia’s net profit declined by more than EUR50 million compared to the previous period (six months ended 30-Jun-2019), when there had already been a net loss of EUR17 million – a figure that includes a write-down due to the collapse of WOW air.

The operating profit before financial items and taxes (EBIT) in the first half of 2020 was negative by EUR35.5 million, but that came on top of a negative operating result of EUR6.4 million the year before.

Keflavík a bigger loser compared to domestic airports and Air Traffic Control

Isavia points the finger of blame not unexpectedly at the virus and emphasises a bigger revenue decline at the parent company that operated the international Keflavík Airport (-97%) compared to the part of the enterprise that operates other airports and ATC (-77%).

It says it “has taken significant rationalisation measures to meet the revenue decline, but their effect will be felt in the second half of the year. Nevertheless, operating expenses did decrease by 12.4% between the first half of 2019 and 1H2020, which is largely due to actions taken by the company following the collapse of WOW air at the end of the first quarter of last year and the effects of the freezing of Boeing 737 MAX aircraft deliveries to Icelandair".

In doing so, this points to one of the advantages that Isavia may have over other operators: as Icelandair now has so much of the overall capacity, the storage of so many of its aircraft on what is a very large airport shared with military use can reduce operational costs significantly.

Redundancies have taken place and Isavia does not expect air traffic to resume until the end of the first quarter of 2021.

The profit forecast now assumes that the total profit of the Isavia Group will be negative by ISK13 billion (EUR80 million) or more in the year 2020, and that the effect of the coronavirus can therefore amount to ISK15 billion (EUR92.2 million) or more on the total profit.

On the other hand (as can be seen in the table above), the company's cash position is strong, as it needs to be, because Isavia expects to be without income at Keflavík Airport until next spring without seeking additional funding. However, it anticipates in its plans to raise new capital for the company in order to be able to maintain business for the coming years.

Looking as confidently as possible, the country’s position in the Atlantic will help with hub traffic

Despite the huge impact of the coronavirus on Isavia's operations and the tourism industry as a whole, the company believes that there are great opportunities for Iceland and domestic tourism when flights resume.

In a statement Isavia said, “We saw this summer that tourists are very interested in visiting Iceland, and then it actually surprised us how fast the airlines increased the number of flights when they started screening for the virus at Keflavík Airport in Jun-2020. In our opinion, tourists will visit destinations that offer spaciousness and purity, so we believe that Iceland will be a sought-after destination when flights resume. We also see great opportunities to strengthen Keflavík Airport's competitive position as a connecting airport between Europe and North America. It must not be forgotten that the airline that has used the airport as a connecting airport recently [i.e. Icelandair] secured important funding. Although the situation now is very demanding, we must not lose sight of the great possibilities we have for the future".

Presumably that means that infrastructure investments, which have been curtailed for now and included the proposed high-speed rail line between Keflavík and Reykjavik, will start up again in 2021. In the past Isavia has been accused of being tardy in planning ahead. But more than USD2 billion was previously earmarked for expansion at Keflavík Airport alone to 2040.

The regional airports may seem marginal to an outside observer, but they are not so to Icelanders

Isavia has responsibility for Iceland’s domestic airports as well, apart from Keflavík and the Reykjavik domestic airport. They are dotted around a country which is the same size as England and Wales, has no rail service and has an impassable interior. Although it now has a completed ring road, it has many other roads that remain at a basic, un-metalled level.

In Iceland there are 13 airports in total that have scheduled services.

All airports in Iceland

Akureyri Airport has recouped 50% of lost capacity

Two of those airports are examined briefly here.

Firstly, Akureyri, in the north, and serving the largest town outside the Reykjavik conurbation.

Akureyri Airport’s passenger traffic has been in decline for the past two years, but in 2019 that was at only one third of the rate at Keflavík, where the loss of WOW Air and a sharp reduction in Icelandair services made their mark.

Before that, there had been some growth as more tourists made their way north, but attempts to attract and retain international services have not been successful. Only 1% of seats presently are international, and they are to/from Greenland.

Akureyri Airport: passenger numbers 2011-2020

Akureyri’s pandemic-induced capacity loss was greater than that of Keflavík initially, but it has since recovered to more than 50% of the capacity in early Mar-2020.

The main airline, as always, is the Icelandair Group semi-autonomous domestic subsidiary Flugfelag Islands ehf, (Air Iceland Connect), with 85% of the capacity.

Akureyri is one of the airline’s two bases, and it is backed up by the independent Norlandair, which operates between four airports in the north of the country on a private charter basis, including that of the island of Grimsey, which is the only part of Iceland to lie within the Arctic Circle.

Going to or from Egilsstaðir by surface shows why the airport is essential

Egilsstaðir Airport in the east is an essential facility, considering that the town is a nine-hour drive from Reykjavik, and it makes clear the country’s reliance on air transport, especially during the winter months.

A significant town by Icelandic standards outside greater Reykjavik, and the largest in East Iceland, Egilsstaðir has a population of only 2,300.

Although not particularly a commercial area, the eastern part of the country got on to the radar of Chinese investors some years ago and obtained both a hydroelectric plant and an aluminium smelting plant in the 2000s. The retention of air services there is essential if this isolated part of the country is to be developed.

There was consistent traffic growth from 2015-2017, but negative growth since then. However, passenger numbers have fallen by only 39% in the period Jan-2020 to Aug-2020. Capacity in the week commencing 06-Oct-2020 is very close to what it was in the week commencing 02-Mar-2020.

Egilsstadir Airport: weekly total seat capacity

Air Iceland Connect is the only scheduled airline operating at Egilsstaðir, and all flights are domestic.

Smaller regional airports have a recovery advantage?

In a way, these small domestic airports have a better chance of returning to ‘normality’ more quickly.

In the main they support essential business travel first (all the main banks are in Reykjavik), followed by essential VFR and other social travel requirements rather than tourism, which is definitely a plus factor during the summer months.

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