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1. nóvember 2001 Utanríkisráðuneytið

Ræðismannaráðstefna: Steinn Logi Björnsson

Ráðstefna fyrir kjörræðismenn Íslands erlendis
Reykjavík, 2.-5. September 2001

Ræður og erindi

Steinn Logi Björnsson, formaður Samtaka ferðaþjónustunnar
"Tourism in Iceland"

Mr. Foreign Minister, chairman and dear friends, I would like to say as I know so many of your faces, after having lived in Europe and North America for quite a while.

I am going to tell you a little bit about the tourism industry in Iceland and also about Icelandair. You see I have two titles in this presentation, I am the senior vice-president of marketing and sales at Icelandair, but I am also the chairman of the Icelandic Travel Industry Association. I was not quite sure in which capacity I should speak so I'm going to speak in both.

The Icelandic Travel Industry Association is an umbrella organisation of all of the companies in Icelandic tourism and travel. That means the airlines, bus companies, restaurants, hotels, sight-seeing companies and other such companies. It is an unusually wide umbrella. Normally it's mostly just the hotels in one such association, maybe the airlines in another but here we have finally managed to organise all into one organisation and that happened two to three years ago and we are already making some progress in working very closely with the the authorities, much closer than before, as a united industry.

Tourism is Iceland's second largest industry. In 2000 there were 303.000 foreign visitors and that is double the number in the start of the decade. Revenue in 2000 was 30,5 billion krónur, or 13,3% of exported goods and services. And that's a 45% increase from 1995 so you can see it is one of the fastest, if not the fastest growing industry in Iceland and has been growing steadily over the last ten years and at a very high rate over the last five years. And the tourism industry is therefore now the second largest earner of foreign revenue in Iceland.

This is how the industry divides roughly:
The green part is air transportation and airports, which is an unusually large part of it here, because you can say that we in Icelandic tourism and travel we export airline services, so therefore it is bigger than maybe normally you would see.

The share of export earnings has more than doubled in the last 15 years. It is now as I said 13,3% of all export and is continuing to rise, particularly now with the exchange rate, of course that applies to all exports, but we are seeing a large increase in that, even this year, despite the slowdown in the world economy. Iceland has a unique position and therefore is not subject to exactly the same demand factors other destinations, provided we have been able to market it correctly, and promoted, and in many cases with the help of some of you.

The arrivals of foreigners, and we have been able to measure the arrivals very accurately until recently, the arrivals are up to 303.000. Last year was the first time that the foreign tourists were more than the number of people living in the country. You can see that the line is very steep there in the last few years, or really as a steady growth. If one projects the same speed or the same growth then of course we would be reaching a million tourists within not too many years, but I will come to that a little bit later on.

The most important markets that we are getting our tourists from are the Nordic countries, with 21% of overnights, and this is measured by overnights in this case, 32% of arrivals; Germany we have 23% of overnights and 12% of arrivals; USA has 9% of overnights but 18% of arrivals; UK has 11% of overnights and 13% of arrivals. It should be noted that the US and the UK markets are the markets that have been growing fastest in terms of arrivals, but they have been growing, luckily I would say, mostly outside of the high season. It means that that's where the trips tend to be a little bit shorter and therefore the overnights do not grow as much, whereas e.g. the continental tourists tend to stay here longer, the French, the Germans and others, and come primarily in the summer. This is a little bit a function of where we have been marketing ourselves, where we have been opening up new air routes. We have been opening up new air routes to North America and to UK mostly in the last few years, and that's where the emphasis has been, and we are trying to do the same now on the continent.

Then there is an increased interest in Asia, Eastern Europe and Southern Europe. For example, in July we had more tourists coming from Taiwan than we had coming from Italy. A surprising figure for us. And the same with Hong Kong and Japan, they are growing, starting to come up as well, which is good because it kind of diversifies the market and we look forward to the foreign service opening of an embassy in Japan. I think that should lead to an increase from that market as well.

This is the distribution of the overnights and this really sums up the problem that we are facing. We have been growing a lot and we have fortunately been growing more in the off-season than in the on-season, which is good, but our basic, primary structural problem still is this seasonality. In the summertime you can say there is a strong demand, there is a lot of people willing to have charter flights, and skim the cream and make profits but most of them close down in the autumn, both tour operators in the foreign markets and the charter airlines. Therefore the big task is to increase the profitability of the off-season, during the wintertime, spring, autumn and winter. That is the inherent problem in our tourism still today, the profitability is low, the margins are relatively low and this is really the main reason for that. But of course this is what we are aiming and spending all of our resources towards doing, is to increase the off-season traffic and it is very pleasant to note that we have now for 2 or 3 years had more visitors come during the period September through May, all the way through the winter, than during June, July and August, and we are hoping to be able to build on that and continue that.

The industry has been growing, as I said, and there has been a lot of diversity. There has been upgrading and developing very positively, there is a lot of new facilities that have come with higher classes; we have the new Blue Lagoon, you have seen that, also on the horse riding tours, they have been upgraded into very nice facilities, where people can come in just normal clothing and get all the equipment, and restaurant and bar and all that, we are slowly trying to improve things in that direction which is also very important when we are talking about increasing winter business. And the same goes for the hotels. We are lacking a 5 star hotel here in Reykjavik and we are moving hopefully in that direction with a project that the government and the city is launching to open up a large conference facility and a luxury hotel down by the Reykjavik harbour. We hope that that is going to come through in the next 4 years and that will also help us contuinue in this direction.

Incentive tours and trips are growing very much and services provided by them, and then all kinds of action activities, and then the city and cultural aspects which have of course been growing and have become more and more popular. We have been trying to do in this period, when we have been marketing Iceland more in the wintertime, we have done that more under the label of Reykjavik, so we really have two brands, if you like. We have the strong Iceland-brand which is nature, wilderness, activity and hiking, and all of that, and then in order to appeal to new segments outside of the high season we are trying to position Reykjavik as a fun city, where we go and talk more about culture, where we try to ride on the wings of Björk and other cultural activities, and last year when Reykjavik was a European cultural city helped of course in this regard. So it's a slightly different positioning, appealing to a different audience and different segments, which is good because then we preserve the on-season tourism which is going for nature and Iceland, and create a new market for the off-season which fits in with conferences and incentives and city breaks and things like that.

This is really how we attack the market, we are talking about in the winter months, we are talking about off-season city break, trendy Reykjavik. Then we go more into the incentives and incentive groups. There we have been facing some problems with hotel capacity, but that is improving. There are some hotels being built and expanded. And then in the high season the focus is primarily on the nature.

Icelandair and the route-network, and here is where I go more into the Icelandair part, are really the key drivers of this growth in tourism, and you can really see where the routes have been growing, that's also where the tourism has been growing. Hub-and-spoke route-network with Iceland as a hub serving the market to and from Iceland with the same resources and markets across the Atlantic. And this is really very important because Iceland is of course a tiny market, a tiny home market, and a very little market for business travel so therefore if the size of our airline and the size of our network would be based entirely on the needs of the local business market we would be talking about a two or three aircraft operation going with a high frequency into one place like Copenhagen or Frankfurt.

But by tying this in and building on the location of Iceland in the middle of the Atlantic where it is on the way, as we say, not out of the way, then we are able to put Reykjavik and Iceland in the middle of a transportation network, rather than as an outskirt of Europe or somewhere in the North Atlantic between Europe and North America.

By creating the hub in Iceland, Icelandair can offer three times the number of frequency and selection of destinations than the market to and from Iceland can sustain. This is more or less what I was saying before, in other words. The largest increase in tourism to Iceland during the last 5 years has been in countries where Icelandair has increased frequency, services and marketing emphasis. Just to be fair I should not overemphasise this. With the establishment of the Icelandic Travel Industry Association and with the events taking place, the cultural city and the discovery of America 2000, the Millennium, we have been able to get the government to really cooperate with us and come with funds for the first time, significant funds, to start to promote the country and help us with that, that cooperation has been very, very good and I hope that that will continue and intensify.

This is the conventional view of the world, and as I said Iceland is an outpost, it is way up north somewhere, out of all travel routes, and it would tell you that somebody flying from New York to England would be flying way south of Iceland. But the reality is different and that is what we build our business on. This is the real picture, so our network is that Iceland is on the way and not out of the way. This is a mental block that we have to fight, but really if you think about it, if you fly from Florida to Europe you fly from Orlando and three hours later you are over New York, and that contradicts with the way of going straight across the Atlantic. This is really the way it is and a lot of people don't realise this, and this is why we are on the shortest flying path between the east coast of America and northern Europe.

So routing via Iceland limits the scope a little bit of our north-south in terms of the range of our aircraft and where our opportunities lie, and then the 24-hour utilisation of our aircraft limits the east-west range, so what we have been able to do within this niche is to select destinations where the rotation of an aircraft is 24 hours going from the east coast of Europe, or somewhere in Central Europe, via Iceland to the east coast of America or up to the Midwest, and back in 24 hours, so we have one of the highest utilisations of aircraft in the world because of this. The time synchronises perfectly with the utilisation of the aircraft. So it takes exactly 24 hours to go from Europe, stop in Iceland, to America, back, stop in Iceland, and back in Europe. This is really the key to our efficiency and how we can maintain this network.

As I said before the opportunity is this, it's a problem but it's also an opportunity because we have capacity and we can fill a lot of off-season business without inceasing production very much. This is the development of the last few years. You can see that because of the buildup of the network we have increased the number of trips between '92 to '99 in December, meaning the winter period, by 152%, and the number of trips between Iceland and other countries during the peak season in July has increased by 56% by Icelandair. Then of course there are others in the summertime, but in the wintertime we are the only ones.

So, where are we going at this rate, when will we reach our one million tourists? Based on our previous 5 years' average increase then we will have the one million tourists by the year 2011, that's not very far away at all. If we take the average increase of the last 10 years then we would be talking about 2015. Of course we have been having extraordinary high growth and it is not guaranteed that it will continue, partly because Icelandair may not be expanding as much as it has been, and of course it is also difficult over a very long period to sustain such a growth, but just calculating the figures forward, that's what it would mean.

And then finally, the big picture. Tourism is a growth industry worldwide, and also in Iceland. Iceland is uniquely positioned to benefit from this growth, we think, because of the unique appeal that Iceland has, its nature, but also in the off-season, its culture and trendy image.

Icelandair has the vision, the know-how and the resources and the commitment to turn that into profits. We haven't been very successful, quite frankly, in the last two years. We are suffering from a lack of profitability which may affect our growth plans. The main reason for that is a very unfavourable European to dollar exchange rates because we have much more income in European currencies and much more expenses in dollars. Therefore we have to buy dollars with European currencies and that has obviously been very unfavourable lately, and of course the fuel prices that have been skyrocketing, and the general demand in the airline business at the moment. But still, we are not giving up and we are continuing of course long term in our plans. Due to its strong reliance on air travel revenue Icelandair shares interest with all the players in the market and in the business here, and would benefit from their development, especially in the off-season market. This goes for other companies in the travel and tourism industry, but also for the government and other players.

You are all aware that we are a completely private company, a private sector company, publicly traded, and therefore of course we have to make it on our own.

Thank you very much.


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