Iceland and the Trials of 21st Century Tourism
Once, Iceland’s top industry was fishing. Then, heavy industry took over. Now, tourism drives economic growth in Iceland. What are the challenges that increased tourism creates for a unique nation like Iceland?
Foreword: The Coming Perils of Overtourism
As Skift enters its fifth year, we are going wider with our coverage of the global travel industry and its effect on the world. The original promise of Skift — the first line in the first-ever business deck we created — was “Travel intersects with every sector in the world from local, national, state, and foreign policy to design, branding, marketing and more.”
As part of that promise, we are starting a series of deep dives into destinations, as a mirror to the larger changes that are happening around the world due to the democratization of global travel over the last two decades.
Overtourism represents a potential hazard to popular destinations worldwide, as the dynamic forces that power tourism often inflict unavoidable negative consequences if not managed well. In some countries, this can lead to a decline in tourism as a sustainable framework is never put into place for coping with the economic, environmental, and sociocultural effects of tourism. The impact on local residents cannot be understated either.
As the world moves towards two billion travelers worldwide in the next few years, are countries and their infrastructure ready for the deluge? Are the people and their cultures resilient enough to withstand the flood of overtourism?
When Skift took the team to Iceland in early summer of 2014, we wrote a story after about how “Iceland is the perfect crucible of a lot of global travel trends we cover on a daily basis on Skift, converging in the tiny country in so many ways over the last few years.”
And converging they are in a big way.
Iceland’s recovery from the depths of the 2008 financial crisis has been remarkable, and is built on the back of an explosive growth in tourism. From 2009 onwards, its tourist growth has been a hockey curve, and now a population of 350,000 residents will welcome about 1.6 million tourists this year.
In 2016, we wanted to look at Iceland as a mirror to the larger changes that happen in a destination when the democratization of global travel meets the willingness of destinations to make tourism as the growth engine of their region.
The Skift investigation explores the problems: beginning with gateway problems at its primary airport, to hotel infrastructure, to Airbnb running rampant, to too many tourists with too little understanding of the ecological fragility of the country, to climate change and tourism’s effect on it, to too few trained tourism professionals in the country, to tour operators feeling the burden, to pressure on understaffed local police, to hollowing out of Reykjavik's downtown, to early signs of locals resenting tourists, and more.
If a first-world country like Iceland is having trouble with figuring out the solutions, what hope do countries like Cuba or Burma have?
That’s the lens we are putting on this long deep dive below, with lessons for everyone in the travel and tourism industry, city and regional planners, and the larger support ecosystem.
— Rafat Ali, Founder & CEO, Skift
In Norse culture, there is a saying: Sjaldan er ein báran stök. There is seldom a single wave.
The island nation of Iceland, which is roughly the size of Portugal and located about 1,100 miles northwest of London, is a flashpoint for the encroaching forces of tourism and globalization.
When the global financial meltdown hit Iceland in 2008, it unleashed a series of devastating consequences: an unprecedented banking crisis, a housing market collapse, and increased unemployment. Iceland’s currency plummeted in value and thousands in export-heavy jobs were put out of work.
Iceland’s natural beauty, and the character of its people, had always been attractive to travelers. Now, both bargain-seeking adventurers and wealthy vacationers looking to cross Iceland off their bucket list can visit.
Tourism in Iceland increased from 18.8 percent of the country’s foreign exchange earnings in 2010 to 31 percent in 2015. Those are some staggering hot-startup-like growth rates. Especially for a country.
Over the same period, tourism surpassed both fishing and aluminum production to become Iceland’s top industry.
In many respects, tourism has saved Iceland from economic hardship and provided the country a solid platform to regrow its economy. The influx of tourists, however, represents something ominous to some native Icelanders.
Iceland’s infrastructure, particularly the network of roads that cut across the island’s mountainous terrain, is in dire need of renovation as an increasing number of tour buses hit the roads each day.
The country’s most popular natural landmarks are under threat from the environmental impact of more tourists visiting during the winter months.
The economic focus on catering to tourists has taken a cultural toll on the country, as well.
While global travel trends have converged in Iceland, travel has also brought the country its share of unprecedented troubles.
In June, Skift went to Iceland for a week-long reporting trip and spoke to more than a dozen leaders and players in tourism, from the man who runs Iceland’s most popular tourist destination to Airbnb superhosts building businesses due to the lack of available hotel rooms in Reykjavik.
Here is our deep dive.
Before You Go
When a small country experiences a tourism boom, it always has unforeseen consequences for both the country’s residents and its natural environment.
Even if putting Iceland on everyone’s mind involved a giant volcano eruption that stopped the world for a few weeks in spring of 2010, Iceland’s growth as a tourist destination since, however, is no mistake or happy accident, according to the nation’s top travel industry stakeholders.
In late 2008, the Icelandic financial system underwent a severe contraction after all three major private banks in the country defaulted on their debt. As Iceland’s banking system collapsed and stock market plummeted, the country entered a depression that would officially end in 2010.
Iceland’s currency, the Icelandic króna, lost value against the U.S. dollar and unemployment in the country tripled to about four percent. Iceland has not had a labor or unemployment problem historically, so the emerging depression was felt deeply by average Icelanders outside the finance sector. The collapse made international news, even during the throes of a global economic meltdown.
Iceland’s economic problems at the time ranked in severity with Greece, Ireland, and Brazil.
The cheap króna began to attract budget-conscious travelers to Iceland, which had long been viewed as an expensive travel destination.
At the same time, Icelandair, the country’s biggest airline, moved away from catering to domestic flyers toward foreign travelers who were now more likely to visit Iceland on holiday. The country’s biggest airline was quietly primed for a comeback, since the vast majority of visitors to Iceland came with the intention of visiting the country’s Golden Circle of tourist destinations, located east of Reykjavik and Keflavik International Airport.
All of a sudden, tourism was becoming Iceland’s fastest growing industry, and well on its way to becoming the country’s top industry.
In April 2010 Iceland’s Eyjafjallajökull volcano erupted unexpectedly. Its ash cloud grounded flights across Europe and acted as a billboard for Iceland in all its extremes.
“Of course, all the world was focused on Iceland during the economic crash,” said Grímur Sæmundsson, CEO of Iceland’s Blue Lagoon spa, the country’s most popular man-made tourist attraction, and chair of the The Icelandic Travel Industry Association. “We had this eruption and the earthquake two years later. At the same time we made a lot of marketing efforts to try to promote Iceland as a tourist destination. It was a combination of external works and our own initiative that created this interest in the country.”
Since then, tourism in Iceland has been on a tear that many don’t expect to end any time soon. In 2015, tourism accounted for 31 percent of the Icelandic economy, according to Statistics Iceland.
Foreign tourism grew by an average of 21.6 percent per year from 2010 to 2015, with 1,289,140 total foreign tourists visiting in 2015. Overall, the tourism boom increased visitation by about 264 percent in five years.
As a nation of about 350,000 citizens, Icelanders aren’t used to thousands of foreigners visiting their small communities each week; many destinations popular on bus tours today were once untouched natural wonders enjoyed in solitude by local families.
A new tension has emerged in Iceland between those who have hitched their wagon to the ascendant force of tourism and those who have been either left behind, or simply identify tourism as a corrosive pressure on Icelandic culture and tradition.
“When you're in a recession and you need to build something up, of course you focus on marketing,” said Ólöf Ýrr Atladóttir, director general of the Icelandic Tourist Board, the organization inside the Icelandic government responsible for handling tourist affairs. “In hindsight, you could say that we should have focused on the infrastructure at the same time. Of course, we couldn't foresee this tremendous growth in interest for Iceland. That is also coupled with the fact that, in the last five years, the world has gone out of a recession. People are traveling more and more. Growth in tourism, in general, is changing globally.”
Icelanders identified three core areas of growing pains that have affected Iceland: a shaky transportation infrastructure; social and economic impacts on native Icelanders, and concerns over environmental preservation.
Even those who have gained the most from the boom say that the Icelandic government has been slow to act and enact sensible regulations and reform. Taxes and tolls, in particular, are an interesting case; the Icelandic government neither taxes visitors for entering the country, nor charges tolls on the country’s key tourism routes.
Money from these taxes, some propose, could fund infrastructure revitalization projects along with environmental protection efforts. But others say that charging taxes and fees not only goes against Icelandic tradition, but could also scare off value-seeking travelers who have helped power Iceland’s economic growth.
Food and gas prices have also been creeping upward for native Icelanders, fueling concerns that money spent by tourists is raising prices across the country.
“With the amount of tourists now, we sell 10 percent more eggs, we sell 10 percent more Coca-Cola,” said Skúli Mogensen, CEO and founder of Icelandic low-cost carrier Wow Air. “Basically, it impacts the whole economy on a much, much greater scale than [traditional travel impact models would say]. The scale is so big now in terms of the numbers that it has a massive impact on all of us.”
“Should we charge for certain attractions?” asks Mogensen. “How should that be distributed? I say we should, of course. The same with the roads. You travel around the world, there are road tolls. There are airport tolls. The taxes need to be clear, they need to have a beginning and an end, so people understand the purpose.”
In many ways, the lessons that Icelandic business leaders have learned from managing the growth of both fishing and heavy industries, which powered its economy for the last century, do not apply to travel and tourism.
“We're just realizing what tourism is: it's a totally different industry from all others,” said Atladóttir. “You can go out and fish, and you go and get your fish, and then come back. There's somebody in the factory that prepares it, and then it's sold. That, of course, is a tremendous economic impact, but then everybody goes home. The fish aren't bothering you out in the streets asking where the restaurants are, and aren't using your buses or utilizing a lot of the public goods. They aren't sitting in your swimming pools. The visitors are visitors, and they're not only visiting the country, they're visiting you. They want to get to know you.”
Let’s dive deeper into the sectors of Iceland’s tourism industry to find out the opportunities — and conflicts — that have emerged during the country’s tourism boom.
The story of Iceland’s emergence as a preeminent global tourism destination couldn’t have happened without the presence of Keflavik International Airport on the southwest coast of the country. The country has two other international airports, located in the north of the country. These receive very little traffic: A full 98 percent of travelers who fly into Iceland do so through Keflavik, a 45-minute drive from downtown Reykjavik.
Much like the rest of the country, Iceland’s aviation industry was hard hit by the country’s financial crisis in late 2008.
“We lost 30 percent of passengers in 2009 after [the] crisis; we went down to roughly 1.8 million passengers from 2.4 million in 2007,” said Björn Ó. Hauksson, CEO of Isavia, the company which oversees Iceland’s three international airports. Hauksson was general manager of Keflavik during the time of Iceland's financial crisis. “We started pushing to rethink looking at tourism as an industry where Icelanders went abroad; 60 percent of all travelers through Keflavik were from Iceland at that time. We had to expand international travel to Iceland and we have been working on that ever since.”
Icelandair, as the nation’s top international airline, played a crucial role by seizing on traveler demand by connecting North America and greater Europe to Iceland at a time when Iceland’s overall economy was hurting. The carrier moved to a hub-and-spoke model, with the goal of turning Reykjavik into a connector for travelers headed from North America to Europe, and vice versa.
The model requires quick turnaround times for incoming aircraft, allowing passengers to seamlessly make their connection to their final destination. It also allows passengers to stopover in Iceland for hours or days, providing them with the ability to experience the country as part of a larger vacation.
Most recently, Icelandair has found success with its Stopover Buddy marketing campaign, which paired flyers with local guides [so tourists could] experience unique adventures around Iceland.
The increase in Keflavik’s arrivals numbers tell the story of this rise in tourist demand. In 2009, Keflavik served 714,682 flyers; in 2015, it served 1,693,858 passengers.
In 2012, European low-cost giant Easyjet became the first foreign player to embrace Keflavik as a hub. It was followed by upstart Icelandic low-cost carrier Wow Air.
Twenty-four airlines are expected to service Iceland in Summer 2016, according to Isavia.
Arrivals are set to continue to increase at levels above 30 percent per year. Data from the European Tourism Commission shows a 35.2 percent increase in international arrivals this year from January to May 2016.
In order to keep pace with demand, Isavia commissioned a new master plan in 2015 to help plan aviation’s growth in Iceland through 2040.
“Our master plan looks very ambitious, and I must admit what shocked us a bit [recently] is that the passenger increase has been much faster than we foresaw [a few years ago],” said Hauksson. “Right now when I look at the passenger numbers this year, we are looking at numbers we thought we would see in 2021. We have to play a little bit differently than an airport would normally, and we have to be flexible with the airlines.”
Instead of focusing on expanding its terminal and creating new slots for aircraft like the master plan calls for, for instance, Keflavik has been working to tweak its existing slots to accommodate the bigger wide-body planes that Wow Air and Icelandair are beginning to favor.
In 2015, Icelandair flights accounted for 14.5 percent of consumer flights in the Icelandic oceanic area, according to Isavia, more than double its strongest competitor United Airlines, which operated 6.1 percent of flights.
But how exactly did Icelandair build itself up from a regional player into a bustling air hub for international tourists? By cutting service when the economic maelstrom hit Iceland, with an eye on retooling for the future.
“In 2008, we had to react very quickly to the external environment and downscale the operation in a very short time,” said Helgi Már Björgvinsson, senior vice president of marketing and sales at Icelandair. “At that time, we felt it was very important to do that to grow the company in the long term. Maybe we didn’t know it would be so quick to turn around.”
Statistics from Isavia show this strategic move. Icelandair flights to and from Iceland dropped from 12,234 in 2008 to 11,394 in 2010. By 2015, Icelandair was operating 21,133 flights annually.
Icelandair was able to nearly double its number of flights in five years, thanks to the Icelandic tourism boom.
“We saw some opportunity in the devaluation of the Icelandic króna; the key is the capacity that we have been building, and basically we have tripled our company in a very short period of time,” said Björgvinsson.
The growth of Icelandair Group, which includes nine other pillars of the Icelandic tourism industry including Icelandair Hotels and tour operator Iceland Travel, has also been the result of consolidated marketing efforts for the promotion of Iceland as a destination.
“Icelandair is very different because we have been destination marketing driven for a long time, and quite a lot of airlines are only selling airline seats; we’re selling the destination,” said Björgvinsson. “At the same time when you’re successful at promoting the destination you promote the idea of other carriers serving it. The Icelandic market is small and quite seasonal, we’ve been more focused on evening that out with a focus on the winter. We’ve been working to ease the strain on the infrastructure, by bringing more people in the winter.”
In many ways, Icelandair’s top national competitor is taking lessons learned in greater Europe and applying them to the Icelandic air market.
When entrepreneur Skúli Mogensen launched low-cost carrier Wow Air in November 2011, the goal was to capitalize on increased demand for cheap travel to Iceland. Over the last five years, after taking over native carrier Iceland Express, Wow Air has grown to serve 28 destinations.
Mogensen expects Wow Air’s annual capacity to reach 1.6 million passengers this year.
“I've been very vocal about the fact that I think we seriously underestimated [Wow Air’s potential],” said Mogensen. “When I say we, I mean we as a nation, we as politicians, we as the airport, primarily because everyone repeatedly said this can't be done. This is the sixth consecutive year of fantastic growth. Now, everyone is scrambling. Could we all have seen [the potential] earlier and planned better? Yes, but that's the past.”
While he isn’t surprised by his airline’s growth so far, Mogensen is concerned about the lack of government coordination when it comes to expanding Keflavik Airport and improving the rest of Iceland’s transportation infrastructure.
“I still think that we need to be more aggressive in actually making decisions,” said Mogensen. “I think we need to add serious investments on the roads; just the physical road infrastructure of Iceland is going to be an issue. We need physical investments at the airport. We need to put in place the master plan. There is a good master plan that is in place, but it's not been fully activated. That should happen immediately.”
Isavia’s Hauksson, however, disagrees with the calls to raise taxes and make air tickets to Iceland more expensive for travelers.
“The main point here is to find a way so we don’t damage what we have,” said Hauksson. “We have seen these kinds of taxes are quite risky. In Norway, they put an environmental tax on flights and the only thing they got out of it is that Ryanair started cutting down and moving their flights somewhere. It happened in Italy as well.”
The future of aviation in Iceland, according to Mogensen, is likely to be similar to the development of air hubs in the Middle East.
“What I think is interesting, when people talk about growth here, is to look at Dubai. Should we try to become Dubai of the north?” asks Mogensen. “The problem with building a new hub is the strength of connectivity. The secret, now, is that we have it down to a science finally where it's relatively easy for me to add any new destination, because I've got so many American points. We have now have de-risked our business. I quite feel pretty good about where we are today, because I can see everything is working."
Where to Stay
If it weren’t such a contentious subject for locals, the rise of Airbnb in Reykjavik could represent a major success story for the sharing economy giant.
The number of hotel rooms in Iceland has increased by 42 percent since 2010, according to data from Statistics Iceland, with 394 hotels and hostels active across the country by the end of 2015.
Downtown Reykjavik is now dotted with cranes looming above the skyline, as dozens of hotels are being built and converted from underutilized buildings across the city. But hotel growth simply hasn’t kept pace with tourism. To put things in perspective, the total number of visitors to Iceland increased by 264 percent over the same period of time.
Airbnb has helped fill the gap between available hotel rooms and hotel room demand.
Dialing down on Reykjavik itself, the effect is staggering. Iceland Tourist Board data suggests that 4,688 hotel rooms were available in or around Reykjavik by the end of 2015.
Map of Airbnb Listings in Reykjavik
The most recent breakdown of Airbnb listings in Reykjavik by technologist Tom Slee found 2,551 distinct listings in Reykjavik when he scraped the site in April 2016.
Adding up the available bedrooms put onto the market through Airbnb amounts to a minimum of 4,092 additional bedrooms available to tourists in the Reykjavik accommodations market. Combined with data on how many people each listing can accommodate, this means 9,923 additional travelers can stay in Reykjavik at any time using Airbnb.
Airbnb has effectively doubled the number of rooms available to travelers, just at a time when both Reykjavik as a city and Iceland as a tourist destination needed it most.
“The Airbnb development has two sides like everything,” said Sæmundsson. “It has the positive side. We would never have been able to receive all these tourists if it was not for Airbnb… the negative impact is that people who had been investing in hotels feel the competitive situation is very screwed up, because Airbnb has been kind of under the radar regarding paying its dues and [the hotel tax].”
For the people making a living off of the sharing economy, the proof of Airbnb’s power is in its widespread adoption.
“It’s a justified bubble,” said Georg Sankovic, a young entrepreneur and Airbnb host who owns five properties he regularly rents on the service while servicing seven other listings for clients. “The small number of people in Iceland, and the quality of life, means that it is justified.”
This growth has brought a backlash with it. Fearing rising property values, and the effects of tourists on Iceland’s singular culture, concerned citizens asked the government to regulate Airbnb.
“Iceland has a population of 350,000, which is a small community in any other country,” said Sankovic, who emigrated to Iceland in his teens from Croatia. “Tourists are opening the country up, and some people are afraid because they know how small the country really is.”
New legislation will take effect on Jan. 1, 2017, with the goal of limiting speculation on real estate and tax evasion as a result of home sharing.
Icelanders will be able to rent out their legal residence or one other owned property intended for personal use for up to 90 days or until two million Icelandic krona (about $17,000) in gross rental income is reached. Those who want to rent their spaces must also register with the police, pay a small fee, and provide an overview of their expected rental days and income.
Hosts who violate the law will receive warnings, then fines of an undisclosed amount.
Icelanders inside Reykjavik’s sharing economy scene say that the legislation won’t do much to stop dedicated entrepreneurs from listing their properties on Airbnb through holding companies and friends. They also think the real reason for the regulation is to protect Iceland’s hotel industry during off-season periods when hotels have the weakest occupancy.
Sölvi Melax, founder of Icelandic car share startup Cario, participated in the discussions with Icelandic parliament surrounding the implementation of the law.
“They expect a 5.7 percent increase of hotel rooms in Reykjavik this year, and a more than 30 percent increase in number of tourists coming here,” said Melax. “It's a mess. There's a massive shortage of housing. There's a massive shortage of hotels. There is a housing problem, and people are going [with] short-term rentals rather than long-term rentals because you make so much money.”
In his mind, stronger regulation of the sharing economy is needed to provide real limits on property speculation without hurting the average family who wants to rent out a room on Airbnb.
“Housing tourists is a real problem in the summer, so let's allow individuals to rent out their house in the summer,” said Melax of the authorities’ logic. “In the winter, now we don't want them to, because we want hotels to be fully booked. You just want to give them the 90 days, because it takes off the peak of the hotels, so they can be fully booked all year round and not allow them to have excess inventory.”
Other sources said that the legislation is doomed to failure due to vagueness and the lack of a police force to prosecute violators. They would only speak off the record, expressing concerns about the authorities.
If you rent out one bedroom in a two-bedroom apartment for 90 days, for instance, does that mean you can later rent the second bedroom for another 90 days, since you only rented half of the property’s bedrooms? It is unclear what exactly is defined as a property, according to the restrictions.
How are taxes assessed if you own two properties, and your spouse owns two properties, and you rent a variety of bedrooms and shared spaces at various times throughout the year?
Smart entrepreneurs will likely keep doing what they’re doing, daring the short-staffed Icelandic police to go after them.
For average Icelanders, listing a property for more than 90 days will lead to higher taxes, since their home will be listed as a business and subject to increased commercial taxes. This will likely deter normal people from registering with the police.
There seems to be a consensus across Iceland’s travel industry that a revised version of the law will be implemented at some point that takes into account the shortcomings of the current version. This uncertainty makes it unlikely for the law as it is written to have serious effect on curbing the growth of Airbnb in Iceland and its negative aftereffects.
Still, hotel developers are ramping up efforts to open new properties in Reykjavik.
“When it comes to the site in the center of Reykjavik, we face an unusual situation due to all the building sites as a result of the crash,” said Svanhildur Konradsdottir, director of culture and tourism for the City of Reykjavik. “For almost five years after the 2008 crash nothing was built, so there is a built-up need and tension for hotels. We’ve set a quota in the center city that we will not allow any more hotel buildings, or any more conversions into hotels. By doing that we are trying to extend this axis that goes through the center of Reykjavik to the west.”
Walking around downtown Reykjavik in June, the city is in the midst of a clear shift toward becoming a bonafide international city with established hospitality brands and attractions geared toward vacationers instead of locals.
After years of wrangling to bring a prestige brand to downtown, a 205-room Marriott EDITION hotel is under construction next to the Harpa theater and convention center, which represents the centerpiece of downtown Reykjavik’s gentrification/reinvention.
Icelandair Hotels has picked up some of the slack in the hotel market by developing new properties in downtown Reykjavik.
“We have a very clear focus on quality rather than quantity,” said Hildur Ómarsdóttir, director of marketing and business development for Icelandair Hotels. “We may be building three hotels in the city, but our focus is entirely on increasing the quality of accommodations in Reykjavik. That’s why we’re aligning ourselves with international brands: to enhance our know-how and sales channels, and reach a different target market.”
Icelandair Hotels is currently developing three hotels in downtown Reykjavik, repurposing existing buildings into small hotels with diverse common area concepts.
“I think we should just face the fact that they are here to stay, and they are here to stay because people like them,” said Ómarsdóttir of Airbnb. “It wouldn’t be growing so drastically in every city if there wasn’t a demand for this type of service. We need to work with it and around it. [Airbnb] makes it even more important for us to differentiate and be pretty clear on what our service is and what we have to offer.”
Hoteliers themselves, however, are wary of the influx of established hospitality brands into Reykjavik.
“If I’m just pondering something from the [previous economic] collapse, you’re growing so much you can’t really sit down and see if what you’re doing is making sense,” said Snorri Valsson, general manager of the 24-room boutique Kvosin Downtown Hotel in downtown Reykjavik. “So you’re just focusing on growth, growth, growth. If you took a Polaroid of where you actually stand, you’d see that three of your eight properties already are losing money and are going to drag the rest down. Then, why even grow so much? That’s not very Icelandic thinking of me.”
What to Do
It’s no surprise that Iceland’s tours and activities sector has expanded to meet demand.
From 2010 to 2014, total tourism-related jobs in the Icelandic economy increased 38 percent. From 2010 to 2015, Iceland has issued 789 travel agency and tour operator licenses, with most being issued to businesses around Reykjavik.
There is still a long way to go as the segment fights to reduce seasonality and attract tourists outside the high season of the Icelandic summer months. After all, you simply can’t sell the same tours to people during the winter months that you can during the summer.
“We need to think strategically about tourism, whereas until now, we're always just thinking how can I get more, and we become so schizophrenic that here in Iceland, we still look at the numbers as the baseline for the success of tourism,” said Icelandic Tourist Board’s Atladóttir. “At same time, we're really worried about how many tourists are coming.”
For Gray Line Iceland, which started as a local bus operator in 1989 and began scheduling day tours in 1997, before becoming officially Gray Line branded in 2013, tourists have helped create jobs and allowed tour guides to experiment with small and niche tours.
“In 2008, we had 55,000 passengers,” said Guðrún Þórisdóttir, managing director of sales and marketing for Gray Line Iceland. “In 2015 we had 510,000 passengers, so that’s a huge change. Just in the past year we have hired 100 people.”
Themed tours based around Game of Thrones have been some of Gray Line’s biggest sellers in recent years, in addition to Northern Lights-based programs that run in the winter, typically Icelandic tourism’s slowest period of the year. The tour operator is also seeing people becoming more comfortable with booking on the same day, even just hours before a scheduled tour.
“Maybe 20 years ago, you had a more educated visitor who had done research on Iceland before they arrived,” said Snorri Valsson, a tour guide with 25 years of experience who is now a specialist at the Icelandic Tourist Board. “Now with increasing tourism, I would say there are more people who have it as a bucket list item or a been-there done-that thing. Travel agencies are trying to market different tours that tap into different niches in the market.”
The flip side of increasing the number of tours is increased congestion at top tourist spots. Typically, buses in Reykjavik would depart at the same time every morning, reaching Golden Circle tourist spots at the same time.
Now, tours are generally staggered to provide a better experience and leave Reykjavik five or six times a day, instead of just once or twice in the morning.
“We buy new coaches every year; I think this year we are buying at least 25 new buses and selling the older models, that’s a huge part of having a modern fleet,” said Þórisdóttir. “The trend is big today to have small groups, so we have maximized some tours at 20 to 25 people, and others with a maximum of 12. We usually give tours two to three years to see if they work.”
But still, experts say the country’s infrastructure is being pushed to the limit.
“As a tour operator, it’s difficult with respect to infrastructure with 30 percent growth year over year for six or seven years,” said Hjörvar S. Högnason, former Icelandair executive and managing director of Reykjavik Sightseeing. “Many of the places we go on these day tours, the facilities there haven’t been able to cope with the influx of people; people are complaining that there aren’t enough facilities, no bathrooms or broken bathrooms.”
Another problem is catering to the diverse cultures and language abilities of visitors.
Top feeder countries for Icelandic tourism in 2015 were the U.S., UK, Germany, France, Norway, Denmark, and China. Chinese tourists alone increased 270 percent from 2013 to 2015, when 47,643 tourists visited, the largest increase of any country.
For Högnason’s Reykjavik Sightseeing, a relatively new tour operator, the challenge is an opportunity to use technology to reach a wider range of tourists.
“We got together with experienced tour guides and asked them to write our scripts,” said Högnason. “It gives us the same quality on each tour and give us the chance to translate it into several other languages. We have reason to believe that 30 or 40 percent of tours today are narrated in languages that tourists understand vaguely or not at all.”
It seems that tour operators are banking on the Icelandic government to get its act together and create a plan to invest strategically in the country’s infrastructure, particularly its roads.
“We definitely need more infrastructure in some of the more popular areas, and tourism is giving the Icelandic government a lot of money,” said Þórisdóttir. “They always say they are going to do something, and they need to do more. This summer they’re putting money into some areas like hiking paths, but they really should be focusing on tourism more, because this is now the biggest industry in Iceland.”
The cultural impact of tourism on Iceland is perhaps underreported, but represents a real concern for many native Icelanders.
While tourists usually come to Iceland to visit nature, almost all of them end up in Reykjavik for at least a night. The shift for Reykjavik from a stopover city to a destination in its own right has happened over the last 15 years.
With nearly 125,000 residents, Reykjavik is by far the biggest city in Iceland, along with its suburbs of Kópavogur and Hafnarfjördur, which add another 50,000 residents to Iceland’s Capital Region. This represents almost two-thirds of Iceland’s total population.
“Looking at Reykjavik now compared to 10 years ago, it’s a totally different city when it comes to tourism,” said Svanhildur Konradsdottir, director of culture and tourism for the City of Reykjavik. “People do come here now particularly off-season for city breaks and 97 percent of visitors stop in Reykjavik. Our goal has been to extend the number of nights people stay in Reykjavik, particularly off season, and we have been quite successful.”
Konradsdottir, who has served as Reykjavik’s culture director since 2005, has witnessed the city’s development from a stagnant and expensive city to a dynamic destination buoyed by culture and commerce. She is also chairman of the board of Meet in Reykjavik, the city’s convention bureau.
The city itself doesn’t charge any direct tax on overnight stays, and all direct taxes go to the state.
The city’s Harpa development, which was funded as a joint city and state project, has caused friction due the cost of keeping up the lavish performance hall and conference center that opened in May 2011. The costs of maintaining the city’s downtown have also increased overall.
“In the last three years, the cost of the city to maintain the infrastructure, whether the roads or cleaning the city center, is increasing quite dramatically,” said Konradsdottir. “We feel the city needs to have more direct revenues than it already has.”
Overall, Iceland’s move away from seasonality has boosted its economy. About 30,000 extra shoppers visiting Reykjavik each week means an increased demand for shops, restaurants, bars, event spaces, and museums.
“It gives you a million extra customers for your business, whether you’re a restaurant, cultural institution or shop,” said Konradsdottir. “Reykjavik has managed to keep its authenticity and you don’t see many international brands. You don’t see Starbucks or McDonald's in the historic center of Reykjavik.”
Cultural sustainability has been a major concern as more businesses have flocked to Reykjavik’s downtown. Dozens of “Puffin Shops,” as they are called by locals, have sprung up downtown selling stuffed animals and knick knacks for tourists, along with bars and restaurants catering to an international clientele.
While some Icelanders bemoan the international influence in Reykjavik, most said that the average Icelander would rarely shop or eat in the city’s downtown before its recent revitalization. They shop at suburban malls and steer clear of a drive into the city.
In her research as director of culture, Konradsdottir said surveys show that Icelanders are still extremely positive towards tourism in general, with more than 95 percent of those polled being completely supportive.
“We saw there were slightly more concerns about the city center, people had reported more instances of disturbances near their homes with Airbnb,” said Konradsdottir. “The local people are still very hospitable and welcoming, but it doesn't change the fact we need to be vigilant. We’re working with the businesses in tourism to tackle the issues, like big buses going into these tiny streets in the center of the city.”
Still, not everyone in Reykjavik is a fan of increased tourism, despite the reputation of Icelanders of being welcoming to outsiders.
“The people who are living here downtown are irritated by the traffic, the noise in the night when people are dragging their luggage,” said Icelandic Tourist Board’s Valsson. “There’s a lot of positives as well, because of all the services this provides for locals as well.”
Icelanders seem to favor common-sense reform that would allow the government to better control the effects of tourism on the country.
“There is no question that if the growth could have been controlled in some way, it would have been better for us but honestly I think we can cope with it,” said Fridrik Palsson, owner of the boutique Hotel Ranga in Hella.
At his home in Reykjavik overlooking the city’s soccer stadium, he points out that he has seen the city’s iconic red and blue roofs replaced by modern buildings and homes in recent years.
A former fishing industry executive, Palsson suggests that limiting and taxing tourism could help solve the country’s problems, much like imposing fishing quotas in the 1980s helped return Iceland’s fish stock to sustainable levels.
“In Iceland, we have never thought that we need to slow down people or put a control on the number of people into any given area; this is so common abroad of course, and it costs a hell of a lot of money to build up our road system,” said Palsson. “It’s not in our nature to do so, we always like to welcome people to our homes. For example, it would be so impolite to ask people to come to our home and charge them for it. But slowly it’s getting around, and I haven’t spoken to any tourist who has been here and wouldn’t pay a fee.”
Iceland uses the Vakinn environmental quality system, which was based off the Qualmark system used by New Zealand, to label sustainable businesses and activities. Determining the sustainability of hotels and tourist hotspots, however, doesn’t make up for the aggregate effect of increased tourism over the years, according to experts.
“The environment is more fragile in the winter time and the shoulder seasons of spring and autumn, due to soil erosion and things like that,” said Icelandic Tourist Board’s Valsson. “Basically, with proper infrastructure we can still increase tourism numbers. Out in the field, I got the sense that the government was dragging its feet for quite a few years. We need catching up, and that’s what they’re doing now.”
Improved infrastructure could also allow remote communities around Iceland, which had traditionally participated in Iceland’s declining fishing industry, to gain a larger share of tourist dollars and visitation. The uneven distribution of Iceland’s tourism industry, which is primarily based out of Reykjavik and its neighboring regions, is another potential long-term problem for the country.
“Of course it’s also nice to have some remote areas, but for the people living there it’s difficult,” said Gray Line’s Þórisdóttir, whose family hails from a tiny fishing village in North Iceland. “The fishing industry has changed a lot, it’s now mostly a few people who own all the fish and get most of the money. There are places that would blossom if they had more tourism.”
As a country and tourist destination, Iceland seems uniquely positioned to harness the value of tourism to help modernize its domestic infrastructure and create a sustainable economic pillar for its citizens.
Its small population and 63-member parliament makes it possible for the country to reach a meaningful consensus on how to best harness tourism as a positive force.
But nothing is certain, as visitors continue to grow with the specter of overtourism lurking on the horizon.
A few trends emerged during talks with industry stakeholders that present a likely vision of Iceland’s development as a travel hotbed.
A group has recently formed as a public-private task force comprised of the Icelandic government and travel industry stakeholders to decide on the wave of reforms necessary to ensure that tourism becomes sustainable in Iceland.
”Now I get the feeling that, for the first time, we really feel that the authorities are coming to an understanding of really what's going on and everyone's getting on the same page,” said Blue Lagoon’s Sæmundsson, who is a member of the task force. “People are coming to terms about tourism. This is happening, this is not going away, we have to deal with it and let's do something about it.”
The task force has a five-year mandate to suggest and implement policy changes. Critics say that the group, which has just four industry players among its 10 members, will act too slowly to react to the changing landscape of tourism in Iceland. More than a year since the group was announced, it has yet to produce any tangible guidelines and policy proposals.
A bigger question looms on whether tourism should be constrained, whether by creating an entry fee to deter the most cost-conscious travelers or creating quotas for national landmarks and tourist destinations.
Experts expect around three million tourists to visit in 2017, a 30 percent increase over this year’s projected total.
“You don’t want people to buy a ticket, see the price is much higher due to a tax, and then fly to Norway or something,” said Isavia’s Hauksson. “We have still not reached the number of travelers that come through the Vatican City; Iceland is less a tourist attraction than the Vatican City.”
There is a move underway to cater to a more high-spending traveler. Blue Lagoon, for instance, is building a small luxury hotel next its spa facilities, while new hotels being built in Reykjavik are looking to appeal to a more upscale vacationer rather than the scrappy millennials used to Reykjavik’s Airbnb listings and hostels.
Tour operators, similarly, are experimenting with smaller groups and more targeted itineraries. But not everyone is sold on turning to upscale travelers to increase profitability.
“If it wasn’t for those bargain hunters, we wouldn’t be where we are today,” said Högnason. “If it wasn’t for these low-cost people paving the way, people like [Sæmundsson] wouldn’t be in the position they're in today; it was hard to get the volume we’re at today.”
As the airlines continue to add destinations to their hub-and-spoke model, more and more travelers will have access to direct flights to Reykjavik.
Wow Air, for instance, just announced a direct flight from Newark, the first low-cost flight to Iceland from the New York metropolitan area. Icelandair recently added Montreal, its fifth city in Canada, and returned to Chicago for the first time in 28 years.
“I am not an advocate for unlimited visitors, I fully agree that visitors are an issue for our nature and preservation,” said Mogensen. “I have no problem with having a cap. We can handle five million travelers, without hesitation, but it will need a lot more work. I think by just doing the small plastering [over of problems] that we're doing today, we can do three million without kidding ourselves. To go much above that, we would need to rethink fundamentally things that we're doing. Otherwise, we will start shooting ourselves in the foot.”
For what it’s worth, the World Travel & Tourism Council expects travel and tourism to support 50,000 jobs in Iceland by 2025, encompassing more than a quarter of the country’s total employment.
As more foreign workers enter the country to work in tours and hospitality, there’s the potential for a backlash from Iceland’s more conservative citizens.
“I think we’re as bad as other countries with xenophobia and all that,” said Kvosin Downtown Hotel’s Valsson. “I think our elections have shown that… if you’re over 60, you’re pretty much scared. Sadly we’re becoming more and more polarized, and that is very sad because we are such a one-class country.”
In the end, Icelanders are sober-minded and particularly well-suited to deal with the challenges that increased tourism has created in their unique country.
“I am always skeptical of people who say Iceland is such a hot destination,” said Konradsdottir, Reykjavik’s director of culture and tourism. “What can only happen is that you fall out of the spotlight over time.”
During our research period in Iceland, we conducted interviews with multiple leaders in the tourism industry. While much of their insight has been incorporated into our story, we thought that longer versions of their interviews could provide additional insight. They appear below and are edited for clarity.
Grímur Sæmundsson, CEO of Iceland’s Blue Lagoon
Q: Looking forward, how do you feel about the prospects of Blue Lagoon and Iceland as a whole continuing to cope with increased tourism growth?
A: I think for my business, we're quite optimistic for the prospects of being a leading brand in Iceland tourism. For the country, I'm quite optimistic. We're used to tackling the elements and living in a very harsh environment. I'm very optimistic that the nation will tackle this and I think that now we have the first signs of that. We're starting to come together to see what does the project have to deal with and how can we deal with it. In general I'm very optimistic for the future of tourism in Iceland.
I think it's healthy for the industry, and for the nation, that this huge growth year over year could kind of go down a bit. What we'll be confronted with will be a matter of debate. The decision is do we have the courage to step back and say, we're not going to be everything for everyone. I don't want to experience Iceland as some kind of a mass destination.
Q: You’re building a luxury hotel next to Blue Lagoon. How do you feel about working to turn Iceland into more of an expensive, high-class destination?
A: You know, I would like to see Iceland keep its characteristics as being very interesting place to visit. Iceland should not be cheap. It should be rather expensive, and with opportunities that are inexpensive. You're able to come to Iceland on a low budget, but the image of the country is not low budget. It is rather expensive and these are issues that we need to, from a strategic viewpoint, kind of develop together with the authorities. What kind of a destination do we want Iceland to be in 10 to 15 years?
Q: What’s your perspective on the role Airbnb has played over the last few years?
A: The Airbnb development has two sides like everything. It has the positive side. We would never have been able to receive all these number of tourists if it was not for Airbnb because the whole tourism issue in Iceland, even that we're now building hotels, we're still not kind of getting there. Airbnb in that sense has a very positive impact, but the negative impact is that people who had been investing in hotels feel that the competition situation is very screwed up because Airbnb has been kind of under the radar regarding paying dues and taxes.
Now we have a new law on Airbnb, but this leaves out the social impact. Actually I am most worried about the social impact. It is definitely positive for those who are getting revenue from their properties by having them on Airbnb. For the others, you know, the neighbors and environment, people might be pissed off. You're living in an apartment building and there are always new people on the floor above you or below you. This creates [the] kind of unrest that this is definitely something that needs to be tackled, and I have a feeling that the authorities are now looking into that, for example.
Q: You’re a member of a new board looking to create a road map for tourism in Iceland. How do you assess the government’s readiness to take a more active role in shaping the industry?
A: The foreign currency situation in the country is now very strong. This, of course, was not the case after the crash. We have been the key factor in keeping the inflation low, so the economic impact of tourism in Iceland after the crash is incredible. At last, tourism is now being recognized, because we had to fight the politicians and the authorities to get them to understand what was happening. The government was just getting more and more revenue from tourism and they acted like they didn't know where it came from.
Now I get the feeling that, for the first time this year, we really feel that the authorities are coming to an understanding of what's going on and everyone's getting on the same page. It's been quite difficult before to fight to get people to understand that this is reality, and that the public has been experiencing this on their own because of the jobs created, because a lot of people have been benefiting from tourism through Airbnb. Now people in the government are kind of getting to terms that this is happening, this is not going away, we have to deal with that and let’s do something about it.
Skúli Mogensen, CEO of Wow Air
Q: Wow Air has been growing steadily, piggybacking on the intense demand for tourism in Iceland. Do you think macroeconomic trends threaten what you’ve accomplished?
A: I certainly hope not. Actually, it's interesting now with Brexit, this whole discussion of being in the EU or not in the EU. A few years back, there was a huge movement in Iceland that we should join the EU. I have never been in favor of that. Then, that same group said, ‘You're a nationalist and you're an isolationist,’ which I think is complete BS.
I think on the contrary, Iceland's quite unique in that sense. We do not have an army. We have great alliances with pretty much everyone. We are part of NATO. We're obviously working very closely with the U.S., very closely with Europe. Whether we are in the EU or not doesn't really matter. Yes, it requires us to do slightly more independent agreements, but most of those are already in place. We have great relationships with China, with India, with Russia.
Why do we manage to get these agreements? Because we are a teeny tiny nation and for whatever reason, most people like us. We're not offending anyone. We're not going to step on anybody's toes.
Again, I see it as an opportunity to be open. I certainly think that we need to preserve and value certain things about Iceland. I think it's important to preserve our language, our culture, respect our nature, and very much like we expect Icelanders to respect those issues, so should any foreigner.
Q: Tourism has recently overtaken fishing and heavy industries as Iceland’s top industry. At the same time, tourism brings a bevy of environmental concerns with it. As the head of a rapidly growing airline, how do you think about preserving the environment?
A: I've been very hopeful about the environment. This is talking and going back to the heavy industry people, of course, who use my planes against me, because I have said as a strategy, we are now as a country, incredibly fortunate to have the luxury of actually making a strategy saying that we're going to be the cleanest country in the world. We can be 100 percent renewable. We can be the first country in the world to ban gasoline cars, or reduce all plastic, or say it's all going to be renewable glass.
At the same time, the government still has incentives to bring in more heavy industry, to bring in more aluminum plants, to bring in more silicon plants. That doesn't make any sense whatsoever to me because they do not really create anything of value here. They pollute. Both physically pollute but also just visually pollute the environment. Again, there's no value creation. These are relatively low-paying jobs they're just labor jobs. Basically, machinery.
This is what I've been trying to tell you. Even if you're not an environmentalist, you just look at the economics, the economics of the situation today, if you're Iceland as a business. This piece of the equation doesn't belong here, it's obvious, both because of the environment, but also because of business resources. I think actually again if we would brand ourselves, I'm not saying tear them down and remove them tomorrow, but they all have X number of years on their energy contracts. Simply let them run out.
Q: Overtourism is a major concern any time a country as small as Iceland experiences rapid tourism growth. Do you think the country should move to provide guidelines around tourism numbers?
A: I think again, we as Icelanders, we are just so spoiled. We are used to having no one around us. As soon as one person is there, ‘Oh, it's crowded.' Second thing we are spoiled is to drive more than 10 minutes anywhere, it's like, ‘Oh, it's so far away.’ Compare this to America, where to drive for two, three hours is no big deal.
We should market the airport, the airport peninsula, Blue Lagoon, Reykjavik, it's all one region here because they’re so close to each other anyway. We should expand our vision of what is the proximity around the airport.
Ólöf Ýrr Atladóttir, director general of the Icelandic Tourist Board
Q: What are your thoughts on overtourism, particularly with respect to the effects of tourism on native Icelanders?
A: Yes, we've experienced an enormous growth. Yes, we have challenges. In some places, there are quite a lot of people at certain times during the day. Sometimes when there are lot of cruise ships, it can have a very overwhelming experience at these traditional Golden Circle sites and something like that.
However, we've sponsored studies on carrying capacity among tourists themselves. It turns out that the group that is experiencing most congestion on these sites is Icelanders. In general, our visitors don't seem to experience the same sensation of overcrowding or congestion as we do.
You could say that that points to us being worried about our visitor experience, which is nice because it means that everybody's still on board with us providing an exceptional experience. Also, because we are traditionally very few here in Iceland. We're really not used to a lot of people. Seriously.
Q: Besides overcrowding, how do you think tourism has affected Icelandic society?
A: Tourism, of course, puts a strain on society. It puts a strain on the public goods. I'm not saying strain in a negative way. I'm saying it has an impact on society and the people and the communities, on the public goods that they're providing, on the road system, on the health system, on the police system, on the educational system, on everything.
Tourism has a tremendous possibility to change society. In the fisheries, you have to have vessels, you have to have some support from the government, you have to have the framework, and then it’s fine. With tourism, you have to have an organizational and structural change of basically everything that the public sector is doing. That's what we need to do, and that also means that it costs money. It's not as organic as we thought.
The road system is expensive. Environmental conservation is very expensive and if you want to have real environmental conservation, you need people there, and you need much more people if you're going to have a million visitors than if you're going to have 100,000.
Q: Let’s say that the government finally steps up to the plate in a real way. What kind of effect on society do you think tourism should have in Iceland?
A: People are traveling as never before, and I think that will continue. Maybe it's just a change in human nature. A large percentage of mankind, they look upon traveling as something that you do. It's a right, almost. You eat, you sleep, you go to school, you travel. I don't think that will change so easily. That means that destinations, I'm not saying they should be picky in who comes, but they can set standards besides thinking, ‘What do I need to do for tourism so more people will come?’ which is the classical way of thinking. Then, ‘How can I minimize the negative impact of that?’ which is the classical way.
What effect do I want this industry to have on society? Beneficial. What negative effects could that incur and how can I work against that? We're not just thinking, ‘What do we need to do for tourism?’ To paraphrase Kennedy, we are thinking, ‘What can tourism do for us and what do we want that to do?’
I think destinations need to have this question at least on a side glance because, as I say, people will travel. They will travel and they will have different needs and they will have different wishes. Destinations can't specialize themselves and they can't become more picky. I'm not saying that every destination should try to be a luxury destination, not at all. Just say, ‘If you want to come here, this is what you need to do. This is how you need to think.’
Q: What about the possibility that the intense growth in tourism begins to tail off?
A: We need to get out of this somewhat schizophrenic mindset that, as I say, at the same time as the governmentally run airport is growing and growing in some sort of inevitability theory, we're not focusing as much resources into the infrastructure and we haven't even decided how much do we want to grow.
That's why we need to ask the critical questions about what do we want from tourism. We need to do that. We need to do that globally, also, because this is something that is not the private matter of individual countries, because tourists will have an environmental impact. They will have a cultural impact.
Maybe we're just realizing now the full extent of what that means. That could be a good impact. It can also breed negativity and that's what we don't want.
Björn Ó. Hauksson, CEO of Isavia
Q: Keflavik International Airport has been scrambling to keep up with passenger demand. But what do you think about the possibility of that demand tailing off sometime soon?
A: Iceland has had at least three times a sharp drop in passenger numbers. The last time in 2008, we lost 30 percent of passengers. Our main objective as a company is to ensure that Isavia, especially in Keflavik, is on a strong financial basis [so] we can take a drop in passengers if that happens. Also, that we don’t over invest.
If I just look back in 2009, we calculated the terminal could have 3.5 million passengers, we are now looking years later into getting numbers up to eight million people in a short period of time, with the same basic infrastructure by ensuring we are looking at a way to be as efficient as possible.
If it happens, I don’t think it’s the worst thing if there comes a slowdown in passenger growth or they stop coming. It’s very rare that airports and the tour industry goes down very hard. Usually it stops for a while and starts growing in a more relaxed way. I would have been very happy to have three-to-seven percent growth, now I’m figuring out what to do with 37 percent growth in a year. What we are having here is not normal. If it goes down to normal numbers, that would be fine.
Q: What’s your biggest concern when it comes to the continued growth of aviation in Iceland?
A: The only thing I sort of fear is that in general there have been discussions these last weeks about the impact of Brexit on the Brussels airport. There are a lot of international things that are shaky these days.
Internally Iceland is a very small country of 350,000. If we don’t manage to be very efficient, we may start lacking people in the not so distant future, and that could hinder the tourism industry. Not that we cannot take [more tourists], but do we have the staff, the know-how, the financial resources to continue to develop?
About This Project
Skift reporter Andrew Sheivachman traveled to Iceland in June 2016 and interviewed leaders in multiple sectors of the tourism industry. He also witnessed the country celebrate its improbable run during the Euro 2016 football competition.
Photos that appear without a credit were shot by Sheivachman or other members of the Skift team.
To produce this feature, Sheivachman was aided by members of Skift's editorial, production, and development team. That team included:
Design: Ping Chan
Development: Mike Linden
Edit: Rafat Ali