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Booming summer tourist season draws to a close

This year’s peak tourist season has been even more bountiful than we had anticipated. The outlook is for some 2.2 million tourist arrivals in 2023 as a whole. Services exports look set to continue growing many times faster than goods exports and to resume the lead as the top foreign revenue generator for the economy.

According to recently published figures from the Icelandic Tourist Board, 282,000 foreign nationals departed Iceland via Keflavík Airport in August, putting the month in third place for August tourist numbers, behind 2017 and 2018. As before, visitors from the US constituted the largest subgroup, at 85,000, or 30% of the total. Next in line were visitors from Germany (7.4%), Italy (6.5%), and France (5.9%). In recent years, Italian tourists have concentrated their Iceland visits in the month of August, and this year was no exception: the number of Italian visitors in August was roughly equivalent to the total for May, June, and July combined.

Departure figures from Keflavík Airport show that nearly 1.7 million foreign nationals visited Iceland in 2022. This total does not include those who arrived via the Akureyri airport and those who came by cruise ship and Smyril Line ferry. The total for the year was the largest since 2019.

In our May forecast, we projected that just over 2.1 million tourists would arrive via Keflavík Airport this year, about the same as in 2017. Actual numbers year-to-date have been well in line with our forecast, but the peak season has been even busier than we expected. Economic headwinds and spiking inflation in the UK and mainland Europe seemingly have no effect on travel to Iceland.

Tourist numbers jump by a third year-on-year

In all, 1.5 million foreign visitors came to Iceland via Keflavík Airport in the first eight months of the year. That makes for an increase of 36% or better relative to the same period in 2022. If the next few months develop in line with the outlook, Keflavík Airport arrivals will be right around 2.2 million for 2023 as a whole, putting the year on a par with 2017 in terms of airport traffic. In 2018, over 2.3 million travellers came to Iceland via Keflavík Airport, setting the record that still stands

but will probably fall next year. We expect 2.3 million Keflavík Airport arrivals in 2024 and nearly 2.5 million in 2025. These will be supplemented by tourists who arrive by other means. If this forecast is borne out, the next two years will set new records for the tourism industry. It should be noted that the totals forecast here include only departures via Keflavík Airport, not cruise ship passengers and visitors travelling to Iceland with the Smyril Line ferry. The slower rate of growth in tourist arrivals further ahead is due, among other things, to a shortage of accommodation and other related infrastructure and to the possibility that a rising real exchange rate could eventually cut into demand for Iceland as a travel destination.

Services exports set to resume the lead in FX revenue generation

With the post-pandemic resurrection of the tourism industry, the sector’s export revenues are back to the pre-COVID peak. From Q3/2022 through Q2/2023, export revenues from tourism totalled ISK 544bn, or 29% of total export revenues for the period. In comparison, marine product exports generated ISK 354bn (19%) and aluminium exports ISK 379bn (20%) in gross foreign exchange revenues. It should be borne in mind that domestic value creation represents a much larger share of export revenues in tourism and the fishing industry than in energy-intensive industry, where imported inputs weigh heavily and profits (or losses) revert to the companies’ foreign owners.

Judging from the available visitor numbers for Q3 and indicators of tourism sector activity in coming months, total export revenues from tourism will quite probably be in the neighbourhood of ISK 600bn this year. In comparison, total revenues for 2018, the sector’s record year, came to ISK 520bn, although the price level has risen significantly since then.

Other services exports have also been growing steadily in recent years. Over the past four quarters, export revenues from these activities total ISK 324bn, or 17% of total export revenues for the period. Total revenues from services exports therefore constituted 47% of total export revenues over the period in question. This ratio peaked at 56% in 2017 but then, naturally, shrank swiftly during the height of the pandemic.

Given the prospect that services exports will grow much faster than goods exports in the coming term, it is likely that services exports will regain the lead soon. It is worth noting here that in our May forecast we projected that services export volumes would increase by as much as 36% in 2023-2025, whereas goods export volumes would grow by just under 5% over the same period. As a result, services will probably overtake manufactured goods as the mainstay of export revenue generation in Iceland by the middle of the decade.


Jón Bjarki Bentsson

Chief economist