Iceland’s tourism boom

Amid bank collapses and a plummeting currency, Iceland appeared to be in for a long economic winter back in 2008. With austerity measures, strict capital controls and a range of reforms all in place, an unprecedented slump seemed certain to scupper any chance of economic growth.

However, through a mix of good fortune and changing international tastes, tourism has ballooned to become the country’s biggest industry, with visitor numbers increasing by more than 20 percent every year since 2010. This overwhelming surge of tourists is having far-reaching effects: the fresh injection of money is changing both public and private sectors at a pace that is difficult to manage, and is drawing increased attention to how the country manages its natural resources.

While there are pockets of cynicism regarding Iceland’s future, more proactive management of tourism is setting the country up to become one of the world’s most desirable destinations for many decades to come.

A fiery history
In some ways, Iceland’s current tourism boom can be traced back to the moment the island first emerged. A relatively young landmass, Iceland was formed between 20 and 30 million years ago, as volcanic activity and the gradual closure of a land bridge that stretched between what are now Scotland and Greenland created its foundations. Volcanic eruptions added to the size of the island, expanding it to the shape we are familiar with today. As far as historians know, Iceland had no residents before the year 874 AD, when settlers arrived from Norway. The country became a separate state from the Danish crown in 1918, and in 1944 it became a republic.

A drastic rise in visitors has seen Iceland’s tourism sector overtake both the aluminium and fishing industries to become the country’s biggest

In Iceland’s more recent history, its economy began to develop rapidly following the end of the Second World War. In particular, Iceland’s fishing industry posted remarkable growth as fleets modernised and equipped themselves to freeze their catches for export. As the country’s financial markets liberalised, it became one of the most desirable destinations for international investment. But, with such a booming economy and substantial interest from the world’s financial players, no one was expecting what would happen in 2008.

The financial crisis put a sudden stop to the flow of money that had been the driving force behind Iceland’s economy. The swift drop of interest in the country’s bond market prompted the collapse of a number of international investment banks. Iceland’s króna went into freefall before trading was suspended, and the country’s stock market fell a jaw-dropping 90 percent, creating a situation that was often described as a ‘national bankruptcy’.

In contrast to other countries, Iceland did not offer its banks a bailout, and allowed the three biggest to fail. Unemployment lingered between nine and 10 percent and any chance of a speedy recovery seemed impossible. While tax measures and austerity policies were put in place to get the economy back on track, it would be a lengthy process. However, unbeknownst to the world, Iceland would soon receive the economic nudge it needed.

Open all year
In 2010, Iceland once again became the subject of international headlines, following the eruption of the Eyjafjallajökull volcano that spewed clouds of ash across the skies of Europe. Since ash had the potential to clog jet engines, thousands of passengers were left stranded at airports due to cancelled flights.

However, for Iceland, the renewed attention was beneficial. Inga Hlín Pálsdóttir, Director of Visit Iceland and Creative Industries, told Business Destinations the eruption did a lot to place Iceland at the forefront of people’s minds: “I think people thought we were an exotic and expensive destination that was not very accessible. The media started talking a lot about Iceland around the volcano, and they started looking deeper into what Iceland is about. I think that created a lot of interest in Iceland as well.”

Visit Iceland and Creative Industries, which was formed in 2010 as a public-private partnership aimed at promoting the country to the rest of the world, seized the opportunity to take advantage of this renewed attention. News broadcasts of the eruption were filled with shots of stunning landscapes and natural beauty located just a three-hour flight from London – and, combined with a depreciated currency, Iceland was suddenly a cheap destination as well.

However, it would be unfair to solely attribute this surge in visitors to the media coverage the eruption brought; an international rebranding of the country as a destination was also an important factor. Pálsdóttir was new to Visit Iceland in 2010, and one of her first challenges was getting people to consider visiting the country during the winter months: “For example, tour operators abroad, they all just had pictures of Iceland in summer. So one task was to get consumers, or just people in general, to understand that you’re actually able to travel to Iceland in the winter season.”

Tourism is now leading a recovery in Iceland that even the most optimistic of economists
didn’t predict

The change in imagery used to promote Iceland had an impact that can be clearly seen in seasonal visitor numbers. While the majority of tourists still visit the country in the summer, winter visitor numbers have surged by approximately 26 percent every year in recent history. But while this increase seems dramatic, Pálsdóttir said there is still plenty of room to grow.

“The numbers sound really big, but if you look at the tourism numbers in Iceland everyday, in the summer season you have around 73,000 people on average a day. But in the winter season you have around 24,000, so we can still do a lot – if you think about using the infrastructure and the investments, you can do a lot still for the off season.”

Pálsdóttir said the surge has prompted dramatic changes in the makeup of Iceland’s workforce, as tourism is the only industry that has generated jobs since the recession: “The total people in 2011 who were working in the industry [was] around 11,000 people, but now you have around 35,000 people working in it.”

Changing dynamics
The increase in visitors to Iceland is difficult to overstate. According to data released by the Icelandic Tourism Board, between 2010 and 2015, the average yearly increase in visitors was 21.6 percent. Between 2014 and 2015 alone, it was 29.1 percent. This trend has seen the tourism sector overtake both the aluminium and fishing industries to become Iceland’s biggest. Tourism is now leading a recovery that even the most optimistic of economists didn’t predict.

Iceland’s natural beauty is unparalleled: Landmannalaugar, one of the country’s most admired features, is a range of stunning mountains made from volcanic rock that swirls with rich yellows, reds and greys. The country’s relatively recent volcanic past is the reason for this distinctive landscape. Another of the country’s most famous attractions is the Blue Lagoon in Grindavík, a geothermal spa where the waters are rich in silica and sulphur. A chance to see the Northern Lights in person is also a huge draw.

More recently, new destinations and experiences have been opened for tourists. This includes an elevator descent into the dormant Thrihnukagigur volcano, which opened in 2012, and tours exploring the inside of Langjökull glacier, which commenced in 2015.

Icelandic culture is also pushing the country to the forefront of the cultural zeitgeist. Scenes for Game of Thrones, Star Wars and The Secret Life of Walter Mitty have all been filmed there, while musical acts like Björk and Of Monsters and Men have drawn attention to the country’s arts scene.

This combination of culture and scenery has strongly resonated with tourists. According to Pálsdóttir: “Last year, our visitors survey for 2015-16 told us that 95.9 percent of tourists were satisfied with their trip to Iceland, and that’s two percent up from the years before.”

Iceland Academy
But with this surge of visitors – particularly during the winter season – a number of challenges have emerged. The speed with which tourist numbers have increased has meant the country needs to address a variety of rapidly emerging issues.

Once such area is tourist safety. According to Pálsdóttir: “Tourist safety is something that we need to be careful about and we need to improve, just so people are aware of our circumstances. We don’t want anyone to go into the highlands in the winter season, and people need to be careful [if they are] not used to icy roads and so on, so we’ve been working on communicating that much better.”

One of the more recent initiatives launched by Visit Iceland has been the Iceland Academy, a series of amusing explanation videos designed to give visitors a crash course in how to navigate some of the country’s lesser-known quirks. These range from cultural lessons and Viking history to more practical advice, including what to pack and how to get around. One video even features an explainer on hot tub etiquette. Also featuring prominently is safety advice regarding things like emergency services.

Pálsdóttir said feedback on the campaign has been extremely positive. “We’ve never experienced that much interest in anything that we’ve been doing with our campaigns or anything like that, so it shows that people are really interested in being responsible when they travel.”

Sustainable management
Tourist safety is not the only factor that needs addressing. Given its newfound importance to the economy, successful management of the industry is integral to the country’s future. Speaking to Business Destinations, Director of the Icelandic Tourism Research Centre, Guðrún Þóra Gunnarsdóttir, said there is no doubt the steep increase in visitors has been instrumental in getting the country to where it is today: “In many ways, the economy is more healthy now than people expected in the first years after the crisis in 2008.”

The Icelandic Tourism Research Centre was established more than a decade ago, and since then has worked to fully understand tourism’s effects on the country and to share knowledge between everyone involved in the industry. With backing from a range of different bodies and universities, the organisation has been examining a number of factors. One area that needs more specific investigation is the tourism jobs market.

“We lack knowledge about the workforce in tourism, which of course has been expanding really fast in the last three years, and we lack knowledge of what kind of jobs, who are the people working in the tourism industry, and just everything related to the tourism workers”, said Gunnarsdóttir.

A major part of Iceland’s appeal lies in its natural resources. From the spectacular displays of the Northern Lights to the beauty of its volcanic landscape, nature is a big draw for many visitors. But for the benefits of the tourism surge to endure long into the future, the country needs to make sure its natural resources are protected.

According to Gunnarsdóttir: “Nature, of course, is our main resource, and the draw of nature is causing this increase, among other things. It’s a delicate recourse, so that’s something that we need to be constantly researching: the interplay of tourism and nature.”

Successful early management of Iceland’s natural resources and beauty could be the secret to making sure the benefits of the tourism boom are felt long into the future. The alternative is letting the landscape fall victim to trampling and general mismanagement, which could have a devastating effect that lasts just as long.

Gunnarsdóttir said damage has so far been minimal, and efforts are underway to make sure no serious damage occurs in the future: “There are efforts going on all around the country to prevent that, but as I said, the investment in infrastructure has not been following the increase in the tourism numbers. So we could do better there, definitely.”

The country’s roads, public infrastructure and the capacity of its emergency services to serve tourists are other areas in need of improvement.

The speed of tourism’s development has made studying and understanding exactly how it has changed Iceland very difficult. Gunnarsdóttir said that, despite tourism’s newfound importance, the Icelandic Tourism Research Centre does not receive enough funding to study everything it would like: “We tend to sort of compare [ourselves] to research within the fisheries, or the agricultural, or the industrial sectors. There is no doubt that there is more money allocated to research within those sectors.”

With additional funding, the organisation hopes to take a closer look at how individual towns and regions are affected by the rising tourist numbers. Early investigations have suggested different regions are facing different challenges, and more research would make addressing specific issues far easier.

People perception
One of the more prevalent narratives in the media is that tourism is having a negative effect on Iceland, with some political opposition already beginning to appear. The leader of Iceland’s anti-establishment Pirate Party, Birgitta Jónsdóttir, has been particularly critical of tourism’s impact on the island, and in a 2016 interview with The Telegraph claimed Reykjavik is becoming more like Disneyland.

Early management of Iceland’s natural
resources could be the secret to making sure
the benefits of the tourism boom are felt long into
the future

However, Gunnarsdóttir said recent research conducted by the Icelandic Tourism Research Centre found locals have been quite positive regarding the benefits tourists have brought to the country: “Almost everybody talks about how this tourism development has made their towns more lively, more vibrant, and there are more things going on. Many mention increased services, like the opening hours of the local shop or the local swimming pool, more restaurants and more going on during the wintertime in some of the communities. So there are lots of positive comments towards the development of tourism.”

Although some residents are wary of the potential for a bust similar to that experienced by the banking sector, Gunnarsdóttir said this is why further research is needed into the effect of the industry and to ensure it is managed in a sustainable way. At least in the short term, a drop in visitors to Iceland seems unlikely. Tourism to Scandinavia in general is on the increase, with Norway, Denmark and Sweden also reporting gradually growing visitor numbers. Increasingly, people are chasing the kind of adventure and beauty that is associated with the north.

Gunnarsdóttir also said that, while it is difficult to establish what has specifically drawn tourists to the region, social media has potentially contributed: “If you go to Instagram or any of those social media places where people distribute pictures, [images of Iceland] are very dramatic, and it’s very visual. I think they create a kind of allure, and people want to take part in this.

“And also, of course, at the same time, the sharing economy is making [holidays to Iceland] much more affordable and much more possible for bigger
groups of people.”

Beyond that, Gunnarsdóttir said the world in general is placing a greater value on the importance of travel. “I think we are all adjusting to a changing landscape, which is the landscape of tourism. It is a cultural force. People feel like they are entitled to travel, and this is changing the way we look at things.”

As Iceland has certainly benefited substantially from this global shift, it may become a case study for other countries to emulate in the future. But for now, visitors are the real winner as they discover Iceland’s stunning beauty.