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50 years ago, Iceland was an afterthought—a
small, barren, insignificant island in the
It had little money, little power, and a tiny
Its economy was primarily dependent on fishing.
The country sits in an area with plentiful
supplies of desirable species of fish and
the capture and processing of this resource
proved a stable source of employment for the
country’s small population, but it was not
a sector that could push the country onto
the world stage.
Iceland’s economy had little blips of growth
throughout the 80s and 90s, but none permanent
or significant but then, in the 90s, economic
Taxes were slashed, state owned enterprises
were privatized, and slow but constant growth
It continued, briefly faltered, and then just
Private industry took hold of the economy,
the financial industry was deregulated, and
Iceland’s banks came to hold hundreds of
billions of dollars in assets.
By 2008, Iceland was the fourth richest country
in the world.
It was on top of the world.
Reykjavik became a small but significant financial
It had everything a small country could want—money,
power, attention—but then it all just came
The economy imploded.
As the global recession began, trust in Iceland’s
small banks started to fall and so did the
value of the Icelandic Krona.
Customers came to withdraw their savings and
the banks just didn’t have the money to
Iceland’s banks dealt with ten times more
money than the entire GDP of Iceland so the
country just couldn’t bail them out.
The banks collapsed and with them the country’s
economy did too.
But Iceland had other assets.
One of tourism’s biggest barriers in accessibility.
If you can’t get to a place, no matter how
much you want to go, you won’t go.
As an extreme example, almost anyone would
probably like to visit the South Pole and
you can visit the South Pole, it just costs
tens of thousands of dollars.
If you took a few zeros off that number, the
number of zeroes on the visitor count would
certainly go up.
In Iceland’s case, it already had accessibility.
Despite its population of only around 340,000,
Iceland has long had a fairly large airline—Icelandair.
You see, in the 1950’s international airline
travel was all heavily regulated with most
prices fixed by IATA so airlines had little
ability to compete on price.
While a route like New York to London nonstop
would be IATA regulated, a connecting itinerary
from New York to Reykjavik to Luxembourg,
on the other hand, would not be IATA regulated
as it was a connecting itinerary so this is
what Icelandair flew.
With this, they could undercut other airlines’
fares by hundreds of dollars.
Thus, Icelandair became one of the first ever
budget airlines and it grew into the transatlantic
airline of choice for students, backpackers,
and other travelers on a budget.
Its numbers of planes and destinations grew
and grew and all of these people were flying
through Iceland but they weren’t actually
going to Iceland.
By 2005, more than two million passengers
were flying through Keflavik airport, Icelandair’s
hub, annually despite only 370,000 of those
actually visiting Iceland.
Of course the other asset Iceland has are
things people want to see—unspoiled, unbridled
It is one of the most spectacular and unique
natural environments in the world and its
only a two hour flight away from the UK.
Now, there was just one more thing Iceland
needed in its tourism recipe—affordability.
With the 2008 financial crisis and banking
industry collapse, the Icelandic Krona too
From the beginning to end of 2008, its value
against the US dollar halved with a similar
story against the Euro.
Of course, that meant that those using the
Dollar and Euro, Americans and Europeans,
could buy more for less in Iceland.
So, Iceland had accessibility, it had affordability,
it had sites people wanted to see, it had
all the fuel for a tourism explosion—it
just needed ignition.
In a way, the very event that crashed the
Icelandic economy initiated the start of its
The Icelandic banking collapse made world
headlines and placed Iceland on the map.
Then, in 2010, two years after the economic
crash, Iceland made even bigger headlines
with the volcanic eruption of Eyjafjallajökull.
The ash cloud that ensued drifted over Europe
preventing almost all flights from operating
for a period of six and a half days.
All in all, over 100,000 flights were cancelled
because of Iceland’s ash cloud but because
of that, reporters from all around the world
descended on Iceland broadcasting images of
the nation’s volcanoes into the homes of
It was free, worldwide advertisement for Iceland’s
A few years after that, Iceland became the
smallest nation ever to quality for a major
tournament as its national football team competed
in the Euro 2016 tournament.
The team lost, but received significant attention
for its qualification and then it ultimately
qualified and competed in the 2018 World Cup.
With these three events, Iceland was now known,
its tourism industry had ignition, and word
It became the tourism destination of the 2010’s
especially for Europeans and Americans.
Iceland hit double digit tourism growth year
over year, year after year.
They had their first year with a million visitors
and then only two years after that they had
their first year with two million.
Tourists just would not stop coming.
New hotels opened every month, new rentals
opened every day.
Iceland’s roads carried a non-stop procession
of camper vans.
New routes were opening to Keflavik Airport
faster than they could build gates.
Icelandair was adding new destinations left
Soon enough, you could get to Iceland nonstop
from more than 50 cities worldwide.
A second Icelandic airline, Wow Air, opened
up and was soon too flying thousands of people
into Iceland each day.
Iceland had real, considerable GDP growth
topping out at over 7% annually—almost unheard
of for a wealthy nation.
Now, taking a step back, worldwide, the tourism
industry is absolutely enormous.
$1.6 trillion was spent on international tourism
alone in 2017.
Capturing a part of this industry is a viable
strategy for economic development.
Some countries grow off manufacturing, some
off mining, and some off tourism.
Now, in the past century, there are so many
stories of countries that went from nothing
to something in an instant thanks to oil.
All of these countries, though, know that
oil is finite and that they need to use the
wealth that oil generates to develop new industries
if they want to survive as wealthy nations
in a post-oil economy.
The UAE, for example, is one of the better
Oil revenues have gone from accounting for
90% of the country’s GDP in the 70’s to
around 25% today.
A lot of this growth in non-oil industries
came from an aggressive pursuit of foreign
direct investment to become the definitive
business hub for the Middle East, but an industry
that played no small part is that of tourism.
21 million people visited the UAE in 2018—quite
impressive for a country physically smaller
than Iceland and even more impressive considering
that number was only 12 million in 2012.
As a country with fewer natural tourism assets
than Iceland, the UAE government has put a
lot of focus into crafting Dubai into the
entertainment capital of the Middle East to
draw these tourists in.
As a result of all these efforts, economically,
the UAE has gone from nothing; to an unstable,
oil-based something; to a diversified something
that will likely survive a future without
Other nearby oil-dependent economies are paying
attention to the UAE’s path.
Saudi Arabia, Bahrain, Qatar, and Oman have
all each also indicated their intention to
grow tourism to be a sizable element of their
This is part of the reason, mimicking Emirates
and the UAE, that these neighbors have devoted
vast sums of money into developing and improving
their state-owned airlines—Saudia, Gulf
Air, Qatar Airways, and Oman Air.
Mimicking the story of Iceland even further,
Qatar has already established itself as a
major connecting airline hub thanks to its
advantageous geographic position and is using
this to introduce more and more people to
the country itself in the lead up to the 2022
Qatar World Cup.
But tourism has its limitations.
It can do a great job of pushing up those
indicators, but not all economic growth is
For one, tourism is a service industry and
these jobs are low wage.
Clearly, most people who were working as banking
executives in Iceland’s collapsed finance
industry are not going to start working in
As such a high-wage country, Icelanders are
just a bit too expensive for many of the jobs
in the tourism industry.
As a result, Iceland opened its borders slightly
and 32% of those now working in its tourism
industry are foreigners—many from lower
Tellingly, 37% of staff in Icelandic hotels
are Polish while only 24% are Icelandic.
Of course, Iceland has absolutely no problem
with unemployment right now, which is mostly
a good thing, but the labor that’s in demand
is low-paid with limited upward potential.
Nobody’s making their millions manning front
In addition, the tourism industry is highly
In Iceland in 2017, just 13.6% of total visits
happened in the entire season of Spring.
It’s hard to offer stable employment when
one month could have triple the demand of
another so the tourism industry provides a
great source of casual, seasonal, low-paid
employment but its much tougher to make a
true career in the industry.
In all, employment is good, but higher quality
employment is better.
Of course, in addition, what most people go
to Iceland to see is its natural beauty.
That is its strategic asset, but the big conundrum
with nature tourism is that use of nature
Of course, you want to allow people to experience
nature but you can only let so many people
see nature before it becomes not all that
More people require more roads, more parking
lots, more paths, soon enough it starts to
look like an amusement park and conversations
about nature conservation start to arise.
Then there are problems with an impact on
national culture, a housing crunch due to
the rise of rentals, implications on the currency
due to heavy conversion demand from abroad,
and just the simple effect of having so many
people visit what was previously such a quiet
Overtourism has become a serious concern for
Regulations and infrastructure simply have
not been able to keep up with the increased
Of course, one final issue with the tourism
industry is that it is fickle.
Today’s trends will be tomorrow’s memory
and just as soon as the tourism industry can
explode, it can implode.
If the recipe for success changes, so does
In 2017, 1/3 of all passengers flying to,
from, or through Keflavik airport, Iceland’s
largest, flew on Wow Air—Iceland’s #2
Unfortunately, though, Wow never reached profitability,
ran out of financial runway, and collapsed.
Overnight, the airline funneling hoards of
paying tourists into the Icelandic economy
ceased to exist.
Now, Wow Air was not a large airline, in its
final days it only had ten planes, but to
a country as small as Iceland, those ten planes
made a difference.
The Icelandic economy was estimated, by the
Icelandic Central Bank, to grow 1.8% in 2019
but since Wow Air’s collapse, that figure
has been revised to estimate a shrinkage of
The year was also supposed to end with unemployment
of 3.1% but now that figure is estimated to
Perhaps more worryingly, though, 2018 ended
with something Iceland had not seen in quite
a while on its visitors statistics—a negative.
The number of visitors to Icelandic airports
in December 2018 shrunk by a percent relative
to December 2017—and that was before Wow
And then January came—down 6.6%; February—down
6%; March—down 13.1%; and April—down 26.4%
compared to the April before.
The Icelandic economy is once again changing
as its unstoppable tourist invasion is coming
to a stop.
Now, nobody’s entirely sure what’s causing
Just like with the initial uptick, one can
only make an educated guess on why thousands
or millions of people are changing their travel
Maybe its that Iceland is getting too expensive,
maybe its that Iceland fell out of fashion,
or maybe there’s somewhere else taking Iceland’s
What’s sure is that it’s not all because
of Wow Air’s collapse—that certainly didn’t
help, but this is a bigger trend—but this
slow-down is not all entirely bad news.
This gives the country time to catch up.
It had a bit of a wild-west period of tourism
during the explosion but it can now collect
itself and figure out how to turn this trend
into an industry that can translate to long-term,
stable economic success.
Thanks to Iceland’s small size, its economy
is small and nimble—they’ve proven in
the past that they can completely reinvent
themselves even within a decade—and perhaps
this is just the start of revolution number
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industry was so strong, one of the things
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