The collapse of Wow Air was blamed in part for falling visitor numbers to Iceland, as the influence of the country as a travel hub waned.
Hotel development was not deterred by the drop in travel, with Six Senses signing an agreement for a resort due to open in 2022.
The IHG brand will open Ossura Valley resort in 2022 with an initial phase of 70 rooms and private cottages. The project has been designed with maximum sustainability, and will be responsible for monitoring a local swan population. Six Senses currently has 19 hotels and 37 spas open, with a further 18 properties in the pipeline.
Six Senses Össurá Valley is owned and being developed by the Álfaland Hotel.
Six Senses CEO Neil Jacobs said: “This development epitomises our commitment to finding locations where guests can be right in the heart of nature, and where they will come face-to-face with the raw beauty, power and soul of this magical destination. It will also appeal to experience-seekers looking for something uniquely joyful and playful. Legend holds that mystical elves still occupy the rocks and cliffs of this land. Each time we talk about the project we smile.”
Meininger was also due to seen a property open in 2020, in Reykjavik, close to the city centre and the Harpa concert hall. Doros Theodorou, CCO, Meininger Hotels, said: “Reykjavik increased its significance as a hub between Europe and North America in the past years, also because the accessibility by air greatly improved. The major share of visitors is leisure tourists coming from both of these continents.”
The pair were not alone in showing an interest in Iceland. At the end of last year, Þorsteinn Andri Haraldsson, analyst at Arion Bank, said: “According to our basic predictions around 1,500 rooms will be added to the market over the course of the next two years. This meets the demand created by a 6% increase in tourists this year and 2% next year on top of the demand created in past years.”
Since that prediction was made, Iceland has seen visitor numbers fall. According to the Icelandic Tourist Board, 139,055 foreign tourists visited the country in January, a fall of 5.8% on year, against a fall of 0.3% as forecast by Isavia, which oversees airport operations in Iceland.
Scheduled flights to Keflavík International Airport dropped little less than 2% in January 2019 according to the data, with the tourist board commenting: “Wow Air’s recent troubles and rising ticket prices to the list, and it seems inevitable that the decline in tourist numbers will continue in coming months. However, it’s highly possible that transit passengers could weigh up against these negative trends.
“Despite the decline in visitor numbers, the outlook is not entirely bleak; the number of foreign tourists visiting Iceland in January 2019 is higher than the combined number of visitors in January 2016 and 2015.”
In March, after the figures were released, Wow Air ceased operations. The airline, based at Keflavík International Airport, pioneered the use of the airport as a stopover point, with travellers able to break their journeys at no extra cost for up to a week. Rival carrier Icelandair offered similar opportunities split journeys, but at a higher price point to the super-budget Wow Air.
Following the collapse of Wow Air, Iceland’s central bank cut its main interest rate by half a point to 4% and said that it expected the economy to contract by 0.4%, compared with a previous estimate for growth of 1.8% for this year.
The bank said that the “deterioration in the economic outlook has caused the inflation outlook to change markedly in a short period of time”. It was hopeful in the long term, adding: “Although the economic contraction will be challenging for households and businesses, the economy is much more resilient than before. Furthermore, monetary policy has considerable scope to respond to the contraction, particularly if inflation and inflation expectations remain close to the target, as is currently envisioned.”
Last month saw Icelandair come closer to selling an 80% stake in its hotel business, with rumours suggesting that Malaysia’s Berjaya Corporation Berhad was likely to acquire the group.
Icelandair Hotels reported post-tax profit of roughly ISK293m (EUR2.1m) last year, ISK15m less than the previous year. The company operated 23 hotels across Iceland, 10 of them summer hotels, in addition to a new hotel being developed in Reykjavík.
HA Perspective [by Katherine Doggrell]: The growth of air travel has been central to the growth of the hotel sector, with the budget airlines in particular responsible for creating destinations where there had previously been none.
A study released by Christie & Co at the end of last year found that air transport and connectivity was a key factor in creating higher tourism potential and passenger stays through increasing arrivals, as illustrated by Iceland, which has seen a 488% increase in airport connectivity over the past decade and saw the biggest 10-year CAGR in hotel arrivals, with 12.3%. Croatia, Poland, Portugal and Spain also benefitted from increased airport accessibility.
Counties such as Finland have been able to benefit from the curvature of the earth, which means that trips to China are that bit shorter.
So Iceland was onto a good thing until it wasn’t and those of us who used Wow Air were indeed concerned that the bargains could not continue indefinitely. Elsewhere this week we talk about the impact of overtourism and, with Reykjavik one of the cities which was often described as being at risk of Disneyfication, a drop in visitors may not be a terrible thing.