Tourist numbers rise, but more slowly than we had expected

The number of tourists travelling through Keflavík Airport rose by nearly 10% year-on-year in Q1/2024. This is a smaller increase than we had expected, and furthermore, indicators imply that revenues per tourist may be on the decline. The next few weeks will probably bring greater clarity about whether tourism industry revenues are likely to increase to any marked degree this year, after several years of swift growth.

About 173,000 foreign nationals departed the country via Keflavík Airport in March, according to new figures from the Icelandic Tourist Board. The total, which is roughly equal to the 2018 peak, represents a YoY rise of just under 8%. Nonetheless, it is somewhat smaller than we had expected, given that this year’s Easter holidays fell mostly in March, while in 2023, they occurred in April.

As is frequently the case as the spring advances, Americans outnumbered the British as a share of the total visitor group in March, while the latter had been the largest nationality group in the first months of this year. In all, Americans accounted for nearly 22% of the total, followed by the British, with just under 20%. Next in line were visitors from China (5%) and France and Italy (4.8% each). Chinese nationals have begun globetrotting in far greater numbers again, after a long period of travel restrictions and reduced appetite for travel in the wake of the pandemic. For instance, the number of Chinese visitors to Iceland in 2024 to date exceeds the total for 2022 as a whole, and equals nearly half of the year-2023 total.

This year’s outlook for tourism was widely discussed throughout the winter, as prospects have dimmed due to the seismic activity on the Reykjanes peninsula and the weaker competitive position of the sector after the post-pandemic boom.  Signs that visitors to Iceland are staying a shorter time in the country, together with reports of setbacks in bookings from some (but not all) tourism operators, are among current causes for concern.

Looking more closely at related indicators and comparing them with departure figures from the Icelandic Tourist Board suggests that bed-nights at registered guest accommodation totalled 2.6 per foreign tourist. This is a major change relative to the past few years: In January/February, bed-nights averaged 3.1 in 2023, 3.0 in 2022, and 2.9 during the last years before the pandemic. In February, bed-nights declined by 2.5% YoY despite a 14% increase in departures from Keflavík Airport, according to a press release from Statistics Iceland (SI).

Furthermore, comparing payment card turnover via domestic acquirers to tourist numbers in Q1/2024 shows that turnover with foreign cards declined by 11% YoY in ISK terms. These figures have a significant shortcoming, however, in that they do not cover payment card transactions made in Iceland but handled by foreign acquirers. A number of tourism operators have moved their business from domestic to foreign acquirers in the recent term, and as a result, card turnover data are less useful as a coincident indicator of developments in tourism. It will be interesting to see data on turnover in the sector during the initial months of the year once they are published later in April, not least to shed light on how they line up with the above-mentioned indicators.

Will tourism revenues increase significantly this year?

In Q1, a total of 460,000 foreign nationals departed Iceland via Keflavík Airport, nearly 10% more than in the same period of 2023. Nevertheless, developments have fallen somewhat short of the projected tourist numbers in our macroeconomic forecast, published in late January. In that forecast, we estimated that 486,000 tourists would visit the country in Q1, which would have equalled a 16% YoY increase.

By the same token, it is still highly uncertain whether our forecast of just over 2.4 million tourist arrivals in 2024 as a whole will materialise, and in light of the data indicating shorter average stays, it is uncertain whether visitor numbers and tourism revenues will move in line with one another. We have recently discussed the potential impact of weaker-than-expected activity in tourism on the domestic economy, labour market, and housing market. If tourism revenues do not grow discernibly this year – due to a weak increase in visitor numbers, reduced revenues per tourist, or a combination of the two – the economy will cool faster than recent forecasts have generally assumed. The broad outlines of the peak tourist season should grow clearer this month, when large foreign tourism companies finalise their bookings for the coming summer and autumn.


Jón Bjarki Bentsson

Chief economist