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Iceland’s Tourism Boom Offers Lessons to Arctic Nations

Tourism is now Iceland’s No. 1 industry, but this transformation hasn’t come without growing pains. Other northern regions can take note as they assess their own potential.

Written by Elaine Anselmi Published on Read time Approx. 6 minutes
Reykjavík in January 2012.Inspired by Iceland

People in Iceland have lived off fishing for many centuries, and in the past decade aluminum production has carved out almost an equal stake in the economy. But both have recently been outpaced by tourism.

Two million tourists are expected to have poured into the island nation in 2016 – more than four times the country’s population – says Guðrún Þóra Gunnarsdóttir, director of the Icelandic Tourism Research Centre.

That’s the result of dizzying, double-digit growth in annual tourist visits in recent years. In 2013, Iceland welcomed 781,000 visitors who spent in 275 billion Icelandic króna ($2.4 billion) – outpacing for the first time the economic mainstays of fish and aluminum exportation. And the tourism industry expects strong growth to continue: by 2017 the year-on-year increase in tourists is predicted to reach more than 30 percent.

Since 2010, tourism has outpaced Iceland’s exports of fish and aluminum.

Since 2010, tourism has outpaced Iceland’s exports of fish and aluminum.

Iceland’s booming tourism industry may be the envy of Arctic nations, but it has had its costs. The country’s rising cost of living, deteriorating infrastructure and lack of government services have left some residents unhappy. While much can be learned from the success of tourism in Iceland, there is also a lot to be gleaned from the challenges it has posed.

The Crisis and the Fix

Change in the economy was already afoot after the 2008 recession led to the collapse of Iceland’s three major private banks. Bankruptcy rippled across the island. Along with it all came the collapse of the Icelandic króna.

While the recession rocked the stability of most Western countries, Iceland had a more literal shake-up just two years later. In April 2010, the Eyjafjallajökull volcano erupted, showering ash and preventing air travel both in Iceland and some other parts of Europe. Not only was it the largest interruption to flights since World War II, but it also singed Iceland’s appeal as a tourist destination – despite the still-recovering króna making it a cheap place to visit. Tourism was projected to decline by 20 percent from earlier predictions for the summer of 2010.

The government and the tourism industry responded by creating a marketing organization, called Inspired by Iceland, to reassure travelers that Iceland was safe. The effort is believed to have helped turn-around a modest decline in tourism visits following the recession.

While other Arctic nations vie for tourists, there are a few factors working in Iceland’s favor. For one, its location: Iceland is conveniently located between Europe and North America, the two continents from which the vast majority of its visitors come.

Iceland’s airlines are capitalizing on this factor, offering stopovers of up to a week in Iceland at no additional cost for travelers en route to either side of the pond. Icelandair, the largest airline and biggest publicly tradable company in the country, even has a promotion to lend out one of its staff members as a local tour guide for a day.

And if Iceland is the final destination, a flight from New York City in March on Wow Air (another Icelandic airline seeing major growth) can come in at under $400 for a round-trip. By comparison, a flight from New York to Iqaluit, Nunavut, at the same time is around $2,300 and to Nuuk, Greenland, about $1,700.

Iceland also has more than its share of items on a northern bucket list. With images of aurora, wildlife, landscapes and lagoons, Iceland has become so good at marketing itself as a tourism product that tourists are now selling it themselves.

This year, Icelandair asked visitors to share their own images and stories of Iceland on social media using the hashtag #MyStopover. So far on Instagram the hashtag has been used 187,500 times, the photographs encouraging other travelers to follow in the same footsteps.

Playing Catch-Up

For northern nations, tourism is a hard sell for nearly half the year. While summer remains the more popular season for travel to Iceland, an Inspired by Iceland campaign to sell the idea of winter visits has been successful at balancing the scales.

“In terms of making Iceland a whole year-round destination, that has been successful,” says Gunnarsdóttir. “There’s a huge increase in winter tourism – growth in the winter months is much higher than the summer months.”

However, some of the challenges of winter visits exacerbate the issue of deteriorating infrastructure and broadening travel outside the capital region. One reason for this is that winter visits tends to be shorter than summer, no more than about four days, says Gunnarsdóttir. With the vast majority of tourists flying in through Keflavik International Airport in Reykjavik in the southwest, it’s unlikely that these travelers will venture far with such limited time.

An added challenge of travel outside of the capital is road conditions. It isn’t uncommon for routes to be closed for a day or two, says Gunnarsdóttir, or for road clearance to be granted only every other day. A good portion of Iceland’s road system outside of major centers is gravel – including more than 30km (19 miles) of ring road that circumnavigates the country.

The tourism boom has also raised worries about the lack of infrastructure and government services needed to support the industry. “Due to the economic crisis, there was a lot of cut-down in terms of funding for infrastructure development, like roads, and the healthcare sector related to health centers. There’s less services than there used to be,” says Gunnarsdóttir. “The same applies to if we look at the number of police working around the countryside and in Iceland in general. There’s fewer police working now than before the crisis but the number of tourists have gone up and up.”

As well as basic infrastructure, there’s the services that contribute to tourism growth, which are largely managed by local municipalities that – as many have complained – do not receive an equal share of the funds from tourism. Community pools, for example, are a major draw for tourists and some municipalities have recognized the need to extend hours. But the additional costs for staffing and maintenance aren’t necessarily covered by entrance fees.

The pressure on local governments, Gunnarsdóttir says, has come under discussion this past year in particular. “Tourist attractions like waterfalls, natural wonders within the municipality – you need a toilet, car parks, there’s a demand for information signs and things like that,” she says. “The increased number of people going to places often increases demands on municipal governments that don’t have big budgets.”

Growing Pains and Potential

Icelanders are already experiencing some challenges from the boom: The younger generation can no longer afford to live in downtown Reykjavik, as entire buildings are bought up for temporary housing such as AirBnB, says Gunnarsdóttir.

Criticism of tourism within Iceland, Gunnarsdóttir says, has largely been directed at government and industry representatives, as the tourism industry at times seems to grow faster than the country is able to prepare for it.

“People in general, Icelanders, are very positive toward tourists, even in the communities where they have a lot of tourists, they are positive toward tourists,” she says. “But they are less positive toward the way tourism development has happened.”

Iceland is well on its way to paying back a loan of $4.5 billion borrowed from the International Monetary Fund and neighboring countries following the recession. Unemployment is back down to pre-recession levels of just over 3 percent and the GDP has increased every year since 2013. The opportunity for tourism is clear, but so are the growing concerns. At the Arctic Circle assembly in Reykjavik in October, Halldór Benjamín Þorbergsson, a senior vice president with Icelandair Group, spoke to delegates about tourism in Iceland and the importance of cooperation between government, industry and communities.

One takeaway, he says, is that governments should not hesitate to protect certain areas with restricted visitorship and impose fees on tourism – Iceland has no entry fee and the hotel tax is less than a dollar. But if done right, he says, there is certainly potential for growing tourism across the Arctic.

“Responsible Arctic tourism allows visitors both to appreciate and respect Arctic nature and cultures and provide additional income to local communities while allowing them to preserve traditional lifestyles,” says Þorbergsson. “Tourism acts as a catalyst to preserve the way of life of the Indigenous people of the Arctic region and in tourism there’s a premium being paid for authenticity.”

With preservation and sustainability a focus of tourism, it can be the balance between other drivers of the economy, he says. “I believe tourism in the Arctic can offer a creative alternative to the industrial activity that is so often the backdrop of Arctic discussions.”

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