Tourist numbers finally on the rise in post-pandemic uptick

May was the first month since last autumn to see more than 10,000 tourist arrivals in Iceland. There are signs that tourists are staying longer, and they are generally spending more, too, as consumption-happy Americans constitute a much larger share of the group than before. The outlook is for a fairly swift rise in visitor numbers in the latter half of the year, and we think it likely that our May forecast of 700,000 tourists in 2021 as a whole will indeed materialise.


A total of 14,400 foreign tourists departed via Keflavík Airport in May. It was the first month with more than 10,000 departures since September 2020, after a resurgence in COVID-19 case numbers last summer prompted a re-tightening of public health measures in late August. Although tourist departures this May came to only 1/10 of the May 2019 total, for instance, they represent an exponential increase relative to this past April. Suffice it to say that Iceland welcomed only a scant 18,000 visitors in the first four months of 2021 combined – only slightly more than the total for the month of May.

Americans outnumbered others by a generous margin, accounting for more than half of May arrivals. The second-largest group were Poles, who accounted for just over 9%, although most of them were probably job-seekers in search of short-term work or people visiting family members in Iceland rather than typical tourists. In third place were Germans, who accounted for just under 7% of May tourist numbers.

The uptick in passenger departures via Keflavík Airport and the changes in nationality demographics are reflected clearly in the May 2021 payment card turnover figures just published by the Icelandic Centre for Retail Studies. The data show that total turnover from foreign visitors in May was more than double the April total and more than four times that in May 2020. Americans accounted for a full 2/3 of card turnover, followed by British and German travellers, with approximately 7% each. It is interesting to note that turnover in May was about 30% of the May 2019 total, even though the number of passengers departing via Keflavík Airport came to only 11% of the total for May 2019. This could be a sign that each person now spends much more money in Iceland than before, but it could also be that counting the number of departures results in an underestimation of the number of visitors in the country at any given time if the figures rise rapidly from week to week. In other words, some of those who arrived in May will probably be included in the Icelandic Tourist Board’s June departure figures, whereas it is fairly safe to assume that fewer tourists arrived in April and left in May.

Americans to carry the weight of tourism in coming months?

Now that travellers are starting to take to the skies again in the wake of the pandemic, it is interesting to examine the demographic shift since last summer. From mid-June through end-August 2020, there were few restrictions on travel to Iceland, and a total of around 115,000 visitors came to the country. But few of them were Americans – only 1.1% of the total, in fact – as restrictions on travel between the US and Europe were tight at that point. Germans (18%) and Danes (14%) were perhaps best represented then, as travel from those countries to Iceland is easy and straightforward, and the pandemic situation was relatively benign at the time.

It will be interesting to keep track of tourist demographics in the coming term. Presumably, Americans will continue to be the largest group, as they have been very interested in travelling to Iceland since restrictions on international travel were eased for those who have been vaccinated. On the other hand, the British appear to have become more wary of travelling following the recent upsurge in COVID infection rates. The British government announced yesterday that the planned relaxation of disease prevention measures, set to take effect on 21 June, would be postponed for four weeks in response to the recent proliferation of the highly contagious delta variant of the virus, which has caused a new wave of infections and hospitalisations. The new airline Play recently announced the cancellation of three flights to London in early July, citing a downturn in bookings from Britain.

Furthermore, it is still uncertain when the Icelandic authorities will ease the rules requiring unvaccinated tourists to undergo two tests and a quarantine in the interim upon arriving in the country. The Icelandic Minister of Health recently announced that, as of 1 July, the authorities will no longer test children or travellers who present a certificate showing that they have been vaccinated or have previously had COVID-19. The rules will be reviewed in mid-July, so it is obvious that the double-testing and quarantine arrangement will remain in place at least until then. As vaccination rates rise in key European countries, however, the rules applying to travellers upon their return home will probably be more important factors – as will the overall appetite for travel in each country at any given time. Furthermore, European authorities are planning to harmonise travel rules within the EU in coming weeks, and while this does not directly affect the arrangements at Iceland’s border, it will affect Europeans’ appetite for travel later this summer.

Our tourism forecast still has a good chance of materialising

The post-pandemic uptick in tourist arrivals has come later than we (and probably most others) anticipated. On the other hand, it is quite likely that visitor numbers will rise steadily from now on. The outlook is for a relaxation of border restrictions both in Iceland and elsewhere, although temporary hiccups such as that in the UK are doubtless to be expected. We projected at the beginning of the year and reiterated in our May forecast that some 700,000 tourists would visit Iceland in 2021. Although the first half of the year was more sluggish than we had expected, we believe our forecast is still likely to materialise.

In a recently published air traffic forecast, Isavia projected that roughly 2 million people would travel through Keflavík Airport this year and that around 400,000 would enter Iceland. However, executives from the company noted in an interview with Iceland Financial News that the forecast was a cautious one based on currently available seat offerings. A number of airlines are said to be considering adding on flights in the next few quarters but will not make a final decision until later this summer.

Furthermore, changes in the composition of the tourist group and other priorities in tourists’ travel plans could prove a boon for Iceland in the near future. For instance, there are signs that people who visit Iceland stay longer than before – at least, if hotel and car rental bookings are any indication. In addition, Americans have tended to be rather relaxed about spending while travelling in Iceland, and if they constitute a larger share of the tourist group, the boost in revenues could outstrip expectations based on head count alone. On the other hand, it is worth remembering that Asian tourists, who have historically spent the most per person while in Iceland, will probably not return to the country in significant numbers until next year. Hopefully, 2022 will be the first full post-pandemic year to see something like a normal tourist season. If developments align with our expectations, about 1.3 million visitors to come to the country next year.

Analyst


Jón Bjarki Bentsson


Chief economist

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