“By combining in its aircraft passengers visiting Iceland, passengers departing from Iceland and passengers travelling across the Atlantic via Iceland, Icelandair has been able to expand its network steadily over the past decades, with further growth planned for 2007.”
Icelandair is the largest subsidiary within the Group, accounting for around 53% of its income. Icelandair carried 1,534 million passengers on its scheduled flights between Iceland, Europe and North America to a total of 23 destinations. The company operates a fleet of up to 12 aircraft at any given time for its scheduled operations.
The Icelandair business strategy is based on the geographical position of Iceland on the flight route between northern Europe and the eastern shore of the US A/Canada. By combining in its aircraft, passengers visiting Iceland, passengers departing from Iceland and passengers travelling across the Atlantic via Iceland, Icelandair has been able to expand its network steadily over the past decades, with further growth planned for 2007.
In 2006 Icelandair Network revenue grew by 11%, while the number of passengers grew by 1% and load factors were down by 1.5 percentage points. The revenue growth is partly due to an improved “mix” of passengers, that is; a larger share of passengers flying on business class, and/or flying on to/from routes rather than on via routes. Other revenues also grew significantly in accordance with Icelandair’s goal to increase ancillary revenues.
Icelandair divides its customer base into three main markets:
Passengers from Iceland (28% of passengers): With its large network Icelandair offered Icelandic customers direct scheduled flights to 23 destinations in Europe and North-America, an astounding range for a market of 300 thousand people. The biggest routes in the Network are to London and Copenhagen. The year 2006 saw continued strong demand for all travel from Iceland.
Icelandair’s revenue from passengers from Iceland has grown by 15-20% annually over the last 3 years. The Icelandair frequent flyer program (Vildarklúbbur) now has over 100,000 members in Iceland and is still growing. The company‘s pricing policy and schedule is designed to attract both business travellers, who schedule their trip at short notice, and leisure / tourist traffic.
Passengers to Iceland (36% of passengers): Iceland has enjoyed increasing popularity as a tourist destination over the past 25 years. The number of tourists visiting Iceland grew from 72 thousand in 1981 to 400 thousand in 2006, which corresponds to an increase of over 7% annually. The vast majority of these tourists travel to Iceland by Icelandair. The company has fuelled this increase by the establishment and development of a network with a very high frequency of flights to Iceland and by strong marketing efforts in Europe and North America.
Transatlantic passengers travelling via Iceland (36% of passengers): Even though itss market share on the North Atlantic market is less than 1%, it is a key factor in Icelandair’s operation. Due to the immense size of this market and the nominal market share held by Icelandair, it serves in effect as a gigantic reservoir of passengers. In its “via” marketing Icelandair focuses on city pairs with limited direct flights, and with its centrally located hub and quick turnaround times at Keflavik International Airport the company is able to offer competitive prices and flying times.
Marketing and selling the product Icelandair has decades of experience in selling its products globally on the general consumer market. Among airlines, Icelandair attracts an unusually high percentage, or 70% of its customers, from outside its home market. In 2006 Icelandair reached its customers through four main channels:
01 Websites in local languages in all key markets. An increasing number of tickets are sold through the Internet, both on Icelandair’s own websites and third-party websites.
02 Own sales offices in key markets, i.e. Iceland, the US A, the UK, Denmark, Sweden, Norway, Finland, France, the Netherlands, Germany, Spain and Italy with call centres staffed by people who speak the local languages.
03 Sales through more than 12,000 travel agents, tour operators and airlines all over the world through various contracts and agreements. Icelandair uses the Amadeus CRS system, which enables travel agents to book tickets with Icelandair instantly at their offices or on websites.
04 An Internet Club of about 550,000 active members, who receive special offers and information on a regular basis.
In 2006 Icelandair was voted the Marketing Company of the Year by IMARK, the Association of Icelandic Marketing People. The Icelandair website was also voted the best Icelandic website by IMARK. The website was also nominated the Best Website Design of the year by Technology for Marketing. The reward is given once a year and is accepted in the “internet world” to be the most important in Europe. Icelandair and The Icelandic Ad Agency got 11 nominations in 9 categories at the Icelandic Advertising Awards and won 4. Icelandair faces competition in all its markets and always has done, however, the company has shown the ability to grow and return profits in this competitive environment.
Icelandair is making several significant changes in order to increase the profitability of its operation.
- Three new destinations will be added to the Icelandair route network – Halifax in Canada, Bergen in Norway and Gothenburg in Sweden. The flights to Bergen and Gothenburg are an addition to the flights already offered to the four Nordic capitals of Copenhagen, Oslo, Stockholm and Helsinki. On average Icelandair will fly 10 times each day to the Nordic countries next summer, and by that Icelandair will have more flights from Sweden, Norway and Finland to the US than our competitors combined. In addition to the introduction of these three new destinations, Icelandair has scheduled an increase in the number of flights to Paris, Frankfurt, Amsterdam and Helsinki next summer, while the summer route to San Francisco has been closed.
- As of summer 2007, Icelandair will introduce new Iceland connections into the route network, including early morning departures from Scandinavia (Copenhagen, Stockholm and Oslo) to Keflavik and late morning departures to North America (Boston and New York) from Keflavik in addition to afternoon departures from North America (Boston and New York) to Keflavik and night departures from Keflavik to Scandinavia (Copenhagen, Stockholm and Oslo). One of the main reasons for this increase is to provide better services and flexibility for business passengers.
- A new income-generating operation in connection with in-flight entertainment, shopping and services for passengers has been set up following the purchase of a new in-flight entertainment system and new seats for the Icelandair fleet. In early 2008 Icelandair will start offering its passenger a whole new flying experience. The new seats and in-flight entertainment system will be installed in all of Icelandair’s Boeing 757 passenger jets that are used on the company’s scheduled routes
- A new Operations Control Centre will be opened in 2007 in order to increase the flexibility, efficiency and safety of the Icelandair network operation and improve passenger services. Fleet and crew management will be reorganised in connection with the establishment of the Centre.
- A new Revenue Management System has been implemented and resources have been placed at the disposal of the company management in order to increase passenger revenue for 2007.
Icelandair will continue on-going efforts to lower cost through increased utilisation of resources and by constantly looking for the most cost efficient ways of providing customers with a highly valuable service. As part of this Icelandair will increasingly use information technology to simplify operation and make live easier for it’s customers.