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Tourist numbers on the rise again

Tourist visits to Iceland rose in March to a level not seen since last October, and the share of British travellers is growing swiftly. Tourist arrivals look set to total around 1.5 million in 2022 as a whole, positioning the tourism industry to regain its status as Iceland’s leading export sector.

Foreign nationals’ departures via Keflavík Airport totalled 101,000 in March, according to newly released figures from the Icelandic Tourist Board, making March the busiest tourist month Iceland has seen since last October. In comparison with the month of March in previous years, last month falls right between 2015 and 2016 and represents the busiest March since 2019.

The British are back

Visitors from the UK have shown keen interest in Iceland in recent months, accounting for over a fourth of tourist arrivals in March. British tourists also constituted a sizeable share of winter tourists during the pre-COVID years, and all indications imply that they are falling back into that pattern this year. Apart from the British, the largest group of travellers came from the US (16%), followed by Germany (9%) and France (6%).

In 2022 to date, nearly 245,000 tourists have visited Iceland, a twenty-fold increase relative to the same period in 2021. For the sake of comparison, some 334,000 travellers came to Iceland in Q1/2020, but it was only in March that year that the implications of the pandemic began to show in earnest. In Q1/2019, around 458,000 tourists came to the country, but it is worth remembering that WOW Air discontinued operation at the end of that quarter.

Tourism regaining ground in terms of revenue generation

The number of foreign tourists visiting Iceland in Q1/2022 was roughly equal to that in Q4/2021, so it seems safe to assume that revenue generation was broadly the same in both quarters. According to Statistics Iceland (SI), tourism-generated export revenues came to nearly ISK 59bn in Q4/2021, whereas revenues from aluminium exports and marine product exports totalled ISK 94bn and ISK 86bn, respectively, in Q1/2022. Tourism still has some ground to cover if it is to resume its former position as Iceland’s largest export sector, but we think that will probably happen later this year.

The outlook is for a rapid rise in tourist numbers in the quarters to come. The tourism sector is upbeat about the peak season, as bookings are generally strong and both domestic and foreign airlines have been adding on flights to and from Iceland. To be sure, uncertainty about the months to come has escalated with Russia’s invasion of Ukraine. Rising fuel prices could push travel costs upwards in the near future, and rising inflation in tourists’ home countries could put a dent in the disposable income that prospective visitors had planned to spend on overseas travel. But as yet, there are few signs that appetite for travel to Iceland has been dampened by this.

In our macroeconomic forecast from January, we projected this year’s tourist numbers at 1.1-1.2 million. Since we published that forecast, however, prospects have improved somewhat. For instance, tourist arrivals in Q1 were closer to the total we had projected for Q1/2023 than for the same quarter in 2022. Added to this are the above-mentioned positive signs concerning bookings and flight schedules in the coming term.

In mid-February, we published a scenario analysis that explores how the economic outlook would be affected if tourist numbers should rise faster than we had forecast. That scenario assumed a total of 1.5  million tourist arrivals in 2022 as a whole. Actual developments since then have reinforced our belief that the February scenario will prove more accurate than our January forecast as regards visitor numbers. As a result, the tourism industry will probably recover more quickly than we projected in January, and revenues from the sector could turn out broadly similar to the 2016 figure of ISK 465bn, which represented 38% of Iceland’s total export revenues for the year.


Jón Bjarki Bentsson

Chief economist