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Stronger-than-expected tourist flows in September

Some 108,000 tourists departed from Iceland via Keflavík Airport in September, the third month in a row with over 100,000. For the first three quarters of 2021 combined, tourist numbers were broadly on a par with the total for 2020. On the other hand, for the remainder of 2021, the outlook is for an increase relative to last year, followed by a rapid recovery within the sector.

Even though September saw a month-on-month decline in tourist numbers, it was the third month this year with over 100,000 arrivals. According to figures from the Icelandic Tourist Board, based on ISAVIA’s head count of departing passengers at Keflavík Airport, just over 108,000 foreign nationals left the country during the month. This somewhat exceeds our expectations and is therefore good news despite the MoM decline.

As in recent months, Americans accounted for the largest share of visitors, with over 30,000, followed by Germans (a scant 14,000), Scandinavians (a scant 7,000), and British and Polish visitors, who numbered 6,600 and just under 6,000, respectively.

Tourist flows set to be strong for the rest of 2021

For the first three quarters of 2021 combined, tourist numbers were broadly on a par with the total for 2020 as a whole. As of end-September, 445,000 foreign tourists had visited Iceland in 2021, as compared with 461,000 in 2020 as a whole. But we expect much more activity in Q4 than in the same quarter of 2020. Last year, hardly any tourists visited Iceland in the final months of the year, as the pandemic surged in the autumn, both in Iceland and abroad.

This year, however, the outlook is for a continued surge through the year-end. In our recent macroeconomic forecast, we projected that roughly 600,000 tourists would visit Iceland this year, or an average of 50,000 per month. Although restrictions were tightened this past summer, interest in Iceland as a travel destination appears to be keen, as vaccination rates are high in many areas and appetite for travel has begun to grow again in both Europe and the US. Given the pattern to date, we now think it likelier than not that this year’s total tourist arrival figures will outpace our baseline forecast.

Americans arriving in droves

COVID-19 has strongly affected the composition of the group of tourists visiting Iceland. Early on in the pandemic, Americans accounted for a very small share of visitors, owing to stringent restrictions on travel between the US and Europe, including Iceland. After the rules were eased for vaccinated travellers from outside the Schengen Area this spring, the Americans’ interest in travelling to Iceland started growing by leaps and bounds, as the chart above indicates. By now, visitors from the US account for a record 38% of the total.

This should be good news for the tourism industry, as American travellers have generally tended to stay longer and spend more while in Iceland than those from most other countries.

The rise in tourist numbers has been accompanied by an uptick in business at Icelandic hotels and guesthouses. Overnight stays by foreign nationals came to nearly 640,000 bed-nights in August, the largest single-month total in almost two years. Apparently, tourists are staying longer now than they generally have in the past. There were 5.1 bed-nights per tourist this summer, up from 4.3 in summer 2019 and 3.7 in the summer of 2018. This is yet another indication that each tourist is generating more revenue and value than has customarily been the case.

Prospects for 2022 are good

As is mentioned above, we recently projected this year’s tourist arrivals at 600,000. Based on the most recent figures, it now appears that this forecast will materialise, and perhaps with room to spare. We also projected that tourist numbers would double to around 1.3 million in 2022 and approach 1.5 million in 2023, and we published alternative scenarios as well.

In the more optimistic alternative scenario, we estimated this year’s total at 700,000, followed by 1.5 million in 2022 and 1.7 million in 2023. The pessimistic scenario provided for 560,000 this year, 900,000 in 2022, and 1.1 million in 2023. It appears that this year’s outcome will be slightly above our baseline forecast. What happens thereafter is highly uncertain, but as we see it, the likelihood of an outcome weaker than we laid out in the baseline has diminished recently. That being the case, it is quite probable that tourist numbers will rise strongly in the next few years. But it is well to remember that the strategy shared by the tourism industry and the authorities focuses on maximising value addition per tourist rather than on maximising arrival numbers. We support this approach, as the future of Iceland as a tourist destination is likely much brighter if Iceland establishes itself as a destination where demand is driven more by quality than by price.


Jón Bjarki Bentsson

Chief economist