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Defensive victory amidst the virus?

Iceland welcomed just over 75,000 foreign tourists in November – about the same as back in November 2015, but a twenty-fold increase over the same month a year ago. As before, Americans are the largest group by nationality, although Britons and Western Europeans are gaining ground. This year’s tourist numbers will probably approach 700,000, and next year looks set for a handsome increase from there.

According to newly published figures from the Icelandic Tourist Board and Isavia, some 75,460 foreign nationals departed Iceland via Keflavík Airport in November. Although this was the smallest number of departures since June, it represented a twenty-fold increase relative to November 2020, when foreign tourists were as scarce as hens’ teeth. It is also worth remembering that even before the pandemic, tourist numbers always declined month-on-month in November. With the exception of 2020, November arrivals were at their lowest since 2015, and in most recent months, 2015 has actually proven the handiest comparison year for tourist numbers.

Americans lead the pack, but Britons are gaining ground

The composition of Iceland’s tourists has changed somewhat in terms of nationality. As before, Americans are the largest group, accounting for more than 14,000 visitors in November, or 19% of the total. This is a smaller share than in the preceding months, though and the share of Britons (15%) has risen accordingly. Visitors from the UK are generally well represented during the winter season, and they totalled just over 11,000 this November. Other large groups came from Germany (just under 8,000), France (just over 7,000), and Poland and the Nordic region (just over 5,000 each).

Over the first eleven months of the year, 623,000 foreign tourists travelled to Iceland via Keflavík Airport, somewhat above our September forecast of 600,000 for 2021 as a whole. Earlier this year, we had forecast a total of 700,000 for 2021 as a whole, and it now looks as though that figure will prove broadly accurate.

Although travellers from the US lost ground as a share of tourists in November, they still stand head and shoulders above other nationalities in the first eleven months of 2021 combined. Americans accounted for nearly 35% of all visitors to Iceland during that period, and it is clear that the authorities’ decision this past spring to open Iceland’s borders to vaccinated travellers from the US and other non-EEA countries was a fortunate one for the tourism sector.

After Americans, the largest groups of tourists came from Germany (nearly 10%), Poland (just over 7%), the UK (nearly 7%), the Nordic region (nearly 6%), and France (just over 5%). Polish visitors stand out in this crowd, though, as they probably travel to Iceland mainly to visit relatives and friends rather than relying on hotels and guesthouses for accommodation.

In our opinion, the large proportion of Americans plays a role in the increase in revenues per tourist relative to the pre-pandemic period. Travellers from the US generally stay longer in Iceland than others do, and they seem willing to spend more on accommodation, food, and other things while in the country. Furthermore, it could be that overall travel behaviour has changed since the pandemic broke out, as tourists generally appear to stay longer than they did before COVID. For example, Statistics Iceland’s (SI) most recent preliminary figures on hotel bed-nights, which extend through November, show an average of 2.6 bed-nights per tourist in October and November, as compared with 2.3 and 1.8, respectively, in October/November 2019 and 2018.

Revenue generation on the rise again

In our recent discussion of developments in the balance on services trade, we noted the key role that increased tourist flows played in expanding the services account surplus in the first three quarters of 2021. December figures are still outstanding, of course, but a likely estimate for the month lies in the range of 50,000-70,000 tourists, which would give a total somewhat north of 200,000 for Q4 as a whole. If this projection proves accurate, tourism-generated export revenues for the quarter could come to around ISK 60bn. We view this is something of a defensive victory, in that despite all the vicissitudes of the pandemic, the tourism industry has risen from the ashes to prove a robust source of foreign exchange revenues.

Once the sector is firing on all cylinders again, much stronger revenue generation can be expected. We project that tourist numbers could rise to around 1.3 million in 2022 and 1.5 million in 2023. Although both the pandemic itself and its impact on global willingness and ability to travel are all but impossible to predict, recent experience has shown us that whenever the opportunity for travel presents itself, Iceland is a high-priority destination among tourists the world over. That being the case, there is no reason not to be optimistic about the recovery of the tourism industry.


Jón Bjarki Bentsson

Chief economist