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Alternate Approach: Doubling down on Canada

Icelandair has a history of defying the odds. In 2008, when Iceland’s celebrated economic boom went bust and business travel to the island nation dried up overnight, the airline flew above the carnage to begin an ambitious growth plan that continues today.


November 14, 2013
By David Carr

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Icelandair has a history of defying the odds. In 2008, when Iceland’s celebrated economic boom went bust and business travel to the island nation dried up overnight, the airline flew above the carnage to begin an ambitious growth plan that continues today. In 2010, when Eyjafjallajokull erupted, closing European airports and disrupting flights across the north Atlantic, Icelandair quickly shifted its base of operation from Reykjavik to Glasgow, Scotland and maintained approximately 85 per cent of its schedule.

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Edmonton should be a natural fit for an airline seeking to operate niche international services in underserved markets. PHOTO: Icelandair


In 2014, Icelandair will launch scheduled service to Vancouver and Edmonton and boost frequency on its Toronto route to daily. It’s an ambitious undertaking for an airline that serves a population of 320,000, or approximately three-quarters the population of Halifax, the company’s first Canadian gateway through a commercial agreement between the airline and the Halifax International Airport Authority. In addition to Canada, Icelandair serves nine U.S. cities and 24 European destinations, adding Geneva to the route network at the same time it pushes deeper into Canada.

The airline’s success lies in marrying geography and service to bond its North American and European destinations through a 24-hour hub at Keflavik International Airport. “One of the key competitive advantages of Icelandair is the strategic location of Iceland,” Helgi Mar Björgvinsson, senior vice president for marketing and sales tells Wings. Iceland rests just below the great circle routes that bridge Europe and North America, making Reykjavik the only city that is a medium-haul destination for cities on both continents and enabling the carrier to carve out a niche service using single-aisle Boeing 757 equipment exclusively.

“We are a hybrid niche carrier and in many cases offer the shortest elapsed time between two different points in North America and Europe,” Mar Björgvinsson says. It has been that way since Icelandair was a low cost fare alternative for backpackers, often playing on Iceland’s liberalized views and hippie culture of the time with ads such as: “The Hippie Airline” or “Lower but Slower,” a reference to their fares.

Icelandair, which is the largest subsidiary of the Icelandair Group, a travel and tourism company, has distanced itself from its colourful past, tightening up operations and introducing three cabins, including premium economy and Saga business class. Still, the fundamentals remain the same. Approximately 50 per cent of passengers flying between Canada and Europe never leave the airport.

Because Icelandair has traditionally cashed in on the heavy summer travel period between North America and Europe, the bulk of its schedule has been seasonal, with several aircraft grounded for heavy maintenance over the winter months or transferred to Loftleider Icelandic, a sister company specializing in charters
and leasing.

Edmonton, Icelandair’s 13th North American gateway, should be a natural fit for an airline seeking to operate niche international services in underserved markets. Indeed, Icelandair announced that four times weekly Edmonton service would be “extended” to year-round even after the inaugural flight pushes back from the gate this March.

The twice-weekly Vancouver route could be a bit of a question mark since Icelandair already operates to Seattle, potentially resulting in passenger bleed on both routes. “Our Seattle service has been a success for us and we hope our Vancouver service will be just as popular,” says Birkir Holm Gudnason, the airline’s chief executive.

The airline also seeks to lower its dependence on the peak summer season by becoming a year-round airline and targeting winter tourism in Iceland. In Toronto, it is aggressively marketing the northern lights. Spreading out the peaks is essential as the airline prepares to take delivery of the first of 16 “out-of-the-crate” Boeing 737 MAX aircraft beginning in 2018. Toronto is Icelandair’s first year-round Canadian destination. The strategy appears to be working. Canadian visitors to Iceland increased by 4.6 per cent in 2012 to almost 19,000. In 2010 and 2011, Icelandair saw opportunity in the ashes of Eyjafjallajokull and Grimsvotn, encouraging tourists to visit both volcanoes as eruptions subside.

Icelandair is expected to grow available seat kilometres 18 per cent in 2014, the single biggest year-over-year increase in company history. That includes adding three more 757s, bringing the fleet to 21 aircraft by the summer. For now, the low ownership costs of the 757 offset the airplanes higher operating costs. The 737 MAX is planned as a growth tool and the search for a 757 replacement is underway. Even so, Icelandair is expected to stick with the type for the next 10 years, possibly making the airline vulnerable to spikes in fuel prices. “We have been able to adjust to the external environment,” Björgvinsson points out. It is an essential part of defying the odds.


David Carr is a Wings writer and columnist.


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