On a cold winter back in 1999, my college friends and I decided to spend our last spring break in the exact opposite way of pretty much everyone else. I had received an email from Icelandair with a great deal. For a mere $220 roundtrip each (including taxes), we could fly from Baltimore to Glasgow, spend 3 nights, and then do an Iceland stopover for 3 nights before heading home. Icelandair’s model was pretty simple, and it hadn’t changed in years. Fly people between North America and Europe for cheap, and then sell the stopover in Iceland as a good thing. That basic premise hasn’t changed, but many other things have. With the advent of aggressive competition alongside new aircraft with longer legs and lower costs, Icelandair has had to adapt. Last week alone, it launched 3 very different types of markets. Each one may hold a key to ensuring Icelandair’s future.
As is the case with Emirates in Dubai or Copa in Panama, it’s Iceland’s geography that makes Icelandair work. Go back to 1999 and you find a shell of what the airline is today, but the premise was the same. Icelandair would easily fly 757s (and in some markets, 737s) to connect bigger cities in the north and east of the US (along with some Canadian cities) to Iceland. Then those airplanes could continue on to Europe and return, bringing passengers back and forth. That Iceland stop was the key, because it was close enough to both sides of the Atlantic to allow for that narrowbody operation. Anything between the US and Europe (save a few eastern US routes) required a big, expensive widebody. Those lower aircraft costs for Icelandair meant it could offer flights for cheap. And people who wanted to fly cheap (as I did back in 1999) would be willing to make the stop in Iceland. Even better, some people, again including me and my friends, liked the idea of staying in Iceland for a day or two.
Fast forward nearly 20 years, and the world is a different place. Iceland’s tourism industry has exploded to the point where many airlines fly into the island’s main airport simply as a destination. Icelandair now makes a fair bit off people who actually want to stay in Iceland, not just pass through. The demand has been enough for a rival to start. WOW and its purple airplanes have been expanding quickly with an ultra low cost model. That demand, however, isn’t enough to support the operations both airlines run. It’s still the traffic between the US and Europe that bolsters both airlines and allows them to fly to so many cities on both sides of the Pond.
The beauty of this model is not just the low costs, but it’s also the ability to connect cities via Iceland that haven’t been able to support nonstop service before. When I flew in 1999, it was from Baltimore to Glasgow. The idea that we’d ever see a big widebody serving that market nonstop was silly. And if you had to connect, an Iceland stop was actually one of the more efficient options around. Combine that with low costs and hence, low fares, and you’ve got a winner.
But now, the 737 MAX and A320neo families are a threat to the airline. That sounds odd considering Icelandair is putting its faith in the 737 MAX as its future workhorse, but it’s true. With fewer seats and lower costs, markets that seemed silly before now seem possible. Baltimore to Glasgow? That sounds positively massive compared to Providence to Cork… but Norwegian is flying the latter route with MAX aircraft already. It’s going to be a lot harder for Icelandair to make a living when people can overfly Iceland and get a cheap fare in the process. So what can Icelandair do?
The airline has started expanding in a way that it hopes can outrun recent aircraft trends. Last week alone, Icelandair added 3 markets in the US bringing its North America total up to 23 destinations, nearly balanced against the 25 destinations it has in Iceland Europe. (In the map above, you’ll count only 21, but that’s because Newark and JFK are combined as are Baltimore and Dulles.) Each of these three new destinations has a different rationale behind it.
Kansas City
Possibly the most surprising of all is Kansas City. This summer, Icelandair will fly from its Keflavik home to Kansas City three times weekly. The flight will be operated by a 757, and that’s the key to this service. You can’t fly a 757 from Kansas City to anywhere in continental Europe. It’s too far. So you need to have a more expensive widebody, and so far, no airline has been able to justify that. Icelandair can take passengers from Kansas City and funnel them into Europe (during peak summer, I might add) with a single stop to a whole host of destinations. Sure, passengers can fly with a single stop from Kansas City to bigger destinations already (like Kansas City – Minneapolis – Paris), but Icelandair can make it more convenient, go into many more cities, and allow for that free Iceland stopover. Oh, and it can likely support lower fares. I like this flight’s chances.
Baltimore
Back when I flew in 1999, Baltimore was a point of focus for Icelandair in the US, but the airline pulled out and eventually returned to the DC area through Dulles instead. Now, Baltimore is back with four weekly flights to Keflavik on a 757 during the summer. There are probably two things going on here. First, WOW flies to Baltimore already, so there could be something of a turf war. But the more interesting explanation is that this is a localization strategy. If you live in the Baltimore area now, your options to get to Europe are fairly limited. Most options require a traffic-choked drive to Dulles (or possibly a train ride to Philly). Icelandair can make a single stop option out of Baltimore as attractive as a nonstop from Dulles, especially since it’ll undoubtedly be cheaper. As for competing with WOW, Icelandair has a very different product. Half the airplane is either Saga (domestic-style First) or Economy Comfort (premium economy) while WOW is nearly all standard coach seats. That and Icelandair’s superior operational performance will attract a fair number of people over WOW.
San Francisco
This is another WOW-competitive market. Icelandair will run 4 daily weekly flights this summer from San Francisco to Keflavik. This is a long way to go, so it has to be on a 767 and not a 757. While San Francisco has more nonstop service to Europe, the number of destinations are still limited. So, Icelandair is going into the primary airport in the Bay Area to open up connecting options.
From the West Coast, Iceland is particularly attractive being right on the great circle route, as you can see in the above image from the Great Circle Mapper. It’s 5,038 miles direct from SFO to Glasgow. Going via Iceland adds a mere 6 extra miles to the process. Further, this helps people avoid those long domestic flights to connect through the East Cost to secondary European destinations. It certainly doesn’t hurt that Icelandair’s partner, Alaska, has its new (thanks, Virgin) SFO hub to help feed the flights. It should be noted that in Seattle, Icelandair is up to two daily flights this summer.
I like to see Icelandair trying new things, because the same old stuff won’t work in the future. Whether all of these work is unclear, but they are summer-only flights that operate less than daily. These are all experiments worth doing. Actually, these are all experiments that are necessary to make sure Icelandair has a future.
