Will 2021 be a stronger year for tourism than we expected?

Just over 100,000 tourists visited Iceland in October, pushing the number for 2021 to date above the total for all of 2020. American tourists outnumber other nationalities by a healthy margin. Revenues per tourist are considerably higher than before the pandemic, and the outlook is for rapid growth in revenue generation in the coming term.


Slightly more than 103,000 foreign nationals departed via Keflavík Airport in October, according to new data from the Icelandic Tourist Board. The total was about the same as in September, and both were below August, this year’s record month, which saw nearly 152,000 departures. As in September, tourist visits in October exceeded our expectations, and it appears that there is still keen interest in travelling to Iceland, in spite of border restrictions and volatility in COVID case numbers this autumn.

Just as in the months beforehand, Americans significantly outnumbered other nationalities in October, at nearly 33,000, or roughly a third of the total for the month. Next in line were British tourists (just over 10,000), Germans (just under 10,000), Scandinavians (a scant 9,000), and Polish visitors (just over 5,000).

2021 tourist numbers set to align with our upbeat forecast scenario

More tourists have visited Iceland year-to-date than in all of 2020. As of end-October, a total of 548,000 foreign nationals had departed via Keflavík Airport, as compared with 479,000 in 2020 as a whole. Back in September, we projected that approximately 600,000 tourists would visit the country this year, and it won’t require a large number in November and December to exceed that forecast. Now that the US has opened its borders to vaccinated travellers and restrictions in Europe remain minimal in spite of a widespread surge in the pandemic, it seems to us that this year’s tourist total could climb to nearly 700,000, which was our first forecast for the year and the optimistic scenario from our autumn forecast.

Americans more than a third of all visitors

As is mentioned above, a large share of this year’s tourists hail from the US – about 37% over the first ten months – reflecting their enthusiastic response to the opening of Iceland’s borders to vaccinated US travellers this past spring. Although Americans have always been well represented among visitors to Iceland, they now account for a record share of the total.

This is good news for the domestic tourism sector, as Americans tend to spend relatively freely when they come to the country. In our tourism industry report from 2019, we noted that only Chinese visitors spent more per day in 2018. But Chinese tourists are few and far between at the moment, accounting for only 0.4% of this year’s visitor total. In view of the stringent border restrictions imposed by China and other Asian countries in the recent term, this should come as no surprise.

Germans were the second-largest tourist group by nationality, with 9.7% of the total for the first ten months of the year. Another 7% were from Poland, many of them probably visiting family members who live in Iceland. Over the same ten-month period, visitors from Scandinavia and the UK accounted for just under 6% each, and French travellers came to a scant 5%. The number of British tourists has been rising quite strongly this autumn – yet another bit of good news for the sector, as the British have been one of the mainstays of off-peak tourism in recent years.

Revenues per capita on the rise

Another factor that has supported revenue generation in the tourism sector in recent months is the trend towards longer stays than during the pre-pandemic period. Comparing Statistics Iceland data on overnight stays at registered guest accommodation locations with the above-specified departure numbers indicates that each tourist stayed in Iceland for an average of 4.7 nights in Q3/2021, as opposed to 4.3 in Q3/2019 and 3.7 in Q3/2018.

It is also interesting to compare tourist numbers with Icelandic Centre for Retail Studies data on foreign payment card use in Iceland. In Q3/2021, tourists’ card turnover in Iceland (i.e., excluding airfares and the like) came to ISK 60.6bn, as compared with ISK 77.4bn in Q3/2019 and ISK 80.7bn in Q3/2018. Dividing these figures by the number of tourists in the corresponding period gives a total of ISK 164,000 per tourist in Q3/2021, ISK 116,000 in Q3/2019, and ISK 101,000 in Q3/2018. Because inflation has been high in the interim and the ISK has weakened, the figures cannot be compared without some adjustment. But they do indicate – as do the above-mentioned overnight stay figures and other indicators such as average car rental periods – that each tourist is spending more than before.

Long-term prospects for tourism are good

The short-term outlook for the tourism industry has certainly clouded over in the past few weeks, with the surge in the pandemic in Iceland and neighbouring countries. Even so, prospects are favourable further ahead. In our macroeconomic forecast from September, we projected that tourist numbers could rise as high as 1.3 million in 2022 and nearly 1.5 million in 2023. If the current favourable trend continues and average value creation per tourist remains higher than during the pre-pandemic boom, the sector has a bright future despite the difficulties of the recent past.

Analyst


Jón Bjarki Bentsson


Chief economist

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