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Growth of the travel industry will rest on more sustainable foundations - new sector analysis by Landsbankinn Economic Research

Following a considerable reduction in the number of travellers to Iceland this year, Landsbankinn Economic Research expects foreign visitors to increase by 3% in 2020 and 5% in 2021, to number 2.2 million, which more or less equals the peak of 2017. Leaders of over 40% of companies in the travel sector expect to see a contraction in income this year yet are generally optimistic about coming years, according to a survey carried out for Landsbankinn as part of a detailed analysis of the travel sector published today by Economic Research.

“In the long term, we are optimistic about the future growth of the domestic travel industry and except it to outpace global developments slightly. Growth will nevertheless be slower than what we have become accustomed to in recent years and will be based on more sustainable foundations,” says Dr. Daníel Svavarsson, Head of Landsbankinn Economic Research

Economic Research presents its conclusions at New interviews with leaders in the travel industry will be presented at the conference, along with talks on the sector’s status and outlook, and it concludes with a panel on airline operations and tourism.

Economic Research’s analysis and interviews with industry leaders are available in Landsbankinn’s magazine, published online via Umræðan.

Key points from the analysis of Landsbankinn Economic Research of the travel sector:

  • In the first 8 months of this year, 1,383,000 tourists visited Iceland, a decrease of 214,000 or 13.4% as compared to the same period the previous year.
  • During the first 7 months of the year, Icelandair transported 29% more foreign travellers to Iceland than in the same period the previous year. In lieu of this increase at Icelandair, tourist arrivals in Iceland would have decreased by 31.4%.
  • Landsbankinn commissioned a Gallup survey of members of the Icelandic Travel Industry Association in preparation for its tourism conference.
  • Around 46% of companies said that they had had to lay off staff in response to the collective bargaining agreements concluded in spring. Some 28% of companies said they had resorted to lay-offs in response to the bankruptcy of WOW air.
  • Measured in turnover in ISK, the Icelandic travel sector (except for transport companies) experienced but little contraction in the period May-June as compared to the previous year. Considered in EUR on the other hand, there is a clear 10% contraction across most categories, except in transport on land, where it hit 18%.
  • The composition of travellers has changed considerably with the failure of WOW air and reduced supply of cheap air fares to Iceland. In the time since WOW air collapsed, travellers visiting Iceland appear to stay longer on average and spend more, measured in their native currencies.
  • The travel sector’s average income per tourist is increasing as compared to the previous year, mostly due to the longer average stay and increased purchasing power due to a weaker ISK.
  • Overnight stays with Airbnb declined by 145,000 in the capital region in the first 7 months of the year, as compared to the same period in 2018, which is a 15.6% reduction. Rental income from lodging facilities in the capital region contracted by around 21% in USD, from just under USD 68 million to USD 53 million. Due to year-over-year depreciation of the ISK, the contraction is less pronounced in ISK, or 7%, which translates to just over ISK 500 million. This year to date, the hotels have been regaining their footing and Airbnb’s market share has declined for the first time since this type of accommodation was introduced in Iceland. We estimate Airbnb’s market share in the capital region at around 36% during the first 7 months of the year.
  • The development of Airbnb accommodation in rural Iceland is very different. Overnight stays in rural regions are still on the rise, despite a considerable slow-down. We estimate that Airbnb accounted for around 40% of total overnight stays in hotels and Airbnb accommodation in rural Iceland this year to date, which is an increase of around 1 percentage point as compared to the previous year.
  • Around 430 new hotel rooms can be expected to enter the market in the capital region this year and around 330 in rural Iceland, or a total of 760. Estimates have it that construction of around 250 new rooms will be completed in 2020 and around 520 in 2021.
  • During the first 7 months of 2019, the average occupancy rate of hotel rooms in the capital region was 73% and 40-63% in rural regions. Occupancy rates in the capital area remain relatively high as compared with the other Nordic countries’ capitals.

The full text of the publication is available on Landsbankinn’s website.