Iceland keeping afloat
Small country positioning itself for major tourism rebound after pandemic
In a normal October, the Radisson BLU Saga Hotel in Reykjavik would be buzzing with tourists hoping for a glimpse of the Northern Lights, business travelers in town for trade fairs, honeymooners gearing up for a tour of Iceland’s waterfalls and geothermal spas. This year, of course, things are very different.
“It’s surreal,” said Ingibjorg Olafsdottir, the hotel’s general manager. “It’s completely quiet.”
Since March, even with government support, Olafsdottir’s staff has shrunk from 140 to just 16. The hotel, which has more than 200 rooms, normally has an occupancy rate of above 75%, but it fell to 11% in September.
Tourism is undergoing an unprecedented downturn all over the world, but several factors make Iceland particularly vulnerable to the industry’s crash: geographic isolation, a small domestic population, strict border measures and an economy that had come to depend heavily on foreign tourists. A recent surge in coronavirus cases has added to Iceland’s challenges.
But while visitor numbers are low, Iceland is positioning itself for a major tourism rebound after the pandemic. The
government is investing more than $12 million in tourism infrastructure. To keep the tourism industry afloat in the short term, the government is also investing more than $9 million in a program that distributes free travel vouchers to Icelandic citizens and residents.
A lack of tourists was the last thing that Icelanders were worrying about in 2018, when the country welcomed a record-breaking 2.3 million visitors — more than six times Iceland’s population.
It was the height of a tourism boom that most observers trace to 2008, when a steep drop in the value of the Icelandic krona suddenly made Iceland much more affordable to outsiders. Then in April 2010, the ash from the eruption of Iceland’s Eyjafjallajokull volcano forced the temporary closure of a large swath of European airspace — and put Iceland into headlines around the world. What started as a travel nuisance turned into a giant publicity boon.
Tourism took off. Visitor numbers rose from 459,000 in 2010 to more than 2.3 million in 2018. Economically, tourism came to account for 8.6% of gross domestic product and 39% of the country’s total export revenue.
Signs of tourism’s impact began cropping up in Reykjavik: Dunkin’ Donuts
appeared in 2015; a Hard Rock Cafe opened the following year; H&M arrived in 2017. In the countryside, sites that had once welcomed a handful of visitors were full of tour groups.
In 2015, a Justin Bieber music video transformed an obscure corner of the Icelandic countryside into a must-see spot for the Instagram crowd. The site — Fjadrargljufur canyon — was soon inundated with tourists.
It wasn’t to last. In 2017, the krona strengthened, making the country more expensive. In March 2019, WOW Air, an Icelandic low-cost airline, collapsed. Tourist numbers that year declined by about 14%. And then came 2020.
The summer started off
fairly well. Coronavirus numbers in Iceland were
low and travel within Europe’s Schengen Area, of which Iceland is a member, began opening up. Travelers to Iceland could choose either to undergo a virus test on arrival or self-quarantine for 14 days. The government rolled out a campaign to promote tourism among the island’s roughly 366,000 inhabitants, offering tourism vouchers worth about $36 to every Icelandic resident over age 18.
The summer was “pretty good, considering everything,” said Bjarnheidur Hallsdottir, the chair of the board of the Icelandic Travel Industry Association and the chief executive of two tourism companies. “And then suddenly out of nowhere, the government decided to change the rules at the borders. Since then, everyone is crying.”
Under the new rules, which took effect Aug. 19 and are still in place, arriving passengers may choose either to submit to two screening tests for the virus, separated by five days’ self-quarantine, or to skip border screening and self-quarantine for 14 days after arrival.
As in most parts of the world, the tumult of the last several months has triggered a surge in unemployment in Iceland. Between March and August, about 8,000 people — roughly 4% of the country’s labor force — were laid off, according to Iceland’s Directorate of Labour; most of those layoffs were in the tourism industry.
After the 2008 banking crisis,
Iceland’s tourism boom helped to propel the country into an impressive economic rebound. But while the rapid growth in foreign arrivals created jobs and revenue, it also outpaced the government’s ability to build the infrastructure to manage so many new visitors. Now, with tourist numbers low, the government has a chance to catch up.
This year, the Icelandic government is investing about $12.3 million in infrastructure at both public and private tourist spots across the country, said Skarphedinn Berg Steinarsson, director general of the Icelandic Tourist Board. Roughly 1 billion krona has been set aside for infrastructure at national parks, protected areas and large public tourist sites, while 700 million krona is going into the country’s Tourist Site Protection Fund.
The largest grants from the Tourist Site Protection Fund are supporting the construction of a viewing platform on Bolafjall Mountain in the Westfjords, Steinarsson said, as well as infrastructure at Studlagil Canyon, where a viewing platform is being installed as well as new walkways, toilets and information signs.
The kind of infrastructure being installed at Studlagil is already in place at most of Iceland’s more established destinations, particularly in the Golden Circle, an area not far from Reykjavik that includes some of the country’s most famous tourist destinations.
Plenty of Icelanders would have seen these places over the last several months. A marketing campaign encouraging Icelanders to explore their country was rolled out in the late spring, while the government’s travel voucher campaign helped to jump-start demand for hotels, restaurants and attractions.
“It was a success,” said Steinarsson of the efforts to encourage domestic tourism. “Icelanders really enjoyed their country during the summertime. And that’s what counts.”