Icelandair Seizes Low-Cost, Long-Haul Opportunities in Norwegian and Wow Air Vacuum

Since ceasing flights in March, 2020, Icelandair is resuming direct flights between Iceland and Minneapolis-Saint Paul International Airport. Okay, routine restoration of a sidelined flight. Yes, but it may signal something larger.

The return to flying out of Minneapolis-Saint Paul for Icelandair comes on the heels of the collapse of  low-cost, long-haul flying by Norwegian Air, which emerged from bankruptcy with a new CEO at the helm, as well as Wow Air’s buckling just months before the pandemic, which resulted in the airline leaving passengers stranded worldwide.

The demise of both of these airlines‘s long-haul transatlantic flying at budget prices has left a vacuum in low-cost flying.

Enter Icelandair to test the new post-pandemic waters. The airline is currently offering four flights a week departing from the Twin Cities with plans to offer one daily flight beginning July 16.

“Iceland is now open to all vaccinated travelers from the U.S. and Europe, which is beginning to open their borders as well,” said Bogi Nils Bogason, CEO of Icelandair. “We are pleased to return to Minneapolis-St. Paul International Airport with non-stop flights to Iceland and connections to the U.K., Scandinavia and Central Europe.”

While Icelandair said it didn’t have specific passenger counts for Sunday’s flight, it said it was very pleased with the passenger loads and sees a very promising booking trend for the summer, a spokesperson said.

The return to the Twin Cities is just one of several U.S. airports Icelandair has resumed service to including New York’s John F. Kennedy (JFK), Newark and Dulles airport in the nation’s capital. Other cities include Orlando, Chicago-ORD, Denver, Seattle, Portland, and Toronto, Canada.

“We are gradually returning to our gateways that were affected by the pandemic and we will continue to increase operations and frequency as protocol allows and demand increases. We will be returning service from BWI (Baltimore International airport) starting spring 2022,” the spokesperson said.

Still, low-cost, long-haul airlines that focus entirely on this segment face several challenges, said George Dimitroff, an analyst with Ascend by Cirium. The first challenge is they tend to carry leisure traffic and are subject to the peaks and valleys of leisure demand, he said.

“When the business model relies on a very high load factor to break even with low fares, and that load factor falls off-season, the business model starts to bleed cash very rapidly,” Dimitroff said. “There are more off-peak than peak months of the year, so it is very difficult to offset losses made off-peak.”

Dimitroff said some of the costs savings that low-cost airlines can achieve on short-haul are simply not achievable on long haul, because it is a more level playing field between business models.

Icelandair, with its focus on bringing passengers in the Minneapolis area or within a short driving distance of the airport to Europe, is doing quite well for a foreign carrier based on data provided by Cirium, the aviation data company.

According to the data provided by Cirium, Icelandair is planning 25 flights between Minneapolis-Saint Paul and Europe in July, six flights less than it offered  pre-pandemic in July, 2019, the data provided by Cirium shows.

“Icelandair is just taking advantage of the Covid-19 shake-up of its weaker competitors to resume its traditional business model with newer aircraft and lower costs, aiming to deliver carefully planned and hopefully sustained growth,” said Dimitroff.

Additionally, Icelandair is able to offer a competitively priced business product through its strong relationship with corporate and travel agents when business travel returns in the fourth quarter of 2021, Dimitroff estimated.

Icelandair’s initial four weekly flights are operating on a Boeing 737 MAX 8 aircraft with 160 seats to Keflavik International Airport, which serves Iceland’s capital city of Reykjavik, said a spokesperson from the Minneapolis-Saint Paul airport commission.

An Icelandair spokesperson said as demand increases, its daily flights will be on a larger Boeing 757, with the ability of operating different aircraft based on availability and demand.

Minneapolis-Saint Paul airport is seeing a big boost in travel this summer with the easing of Covid-19 restrictions and increasing vaccinations rates, an airport spokesperson said.

Airlines are operating 404 daily departures to 184 destinations in June — 177 domestic and seven international — versus 139 daily departures year over year, said the airport spokesperson.

Come July, airlines are scheduled to operate 421 daily departures, the airport spokesperson said.