Post-crash, Iceland hotels see growth
24 JUNE 2015 6:10 AM
The Icelandic hotel industry is roaring back after financial and natural disasters.
GLOBAL REPORT—First there was the crash, and then the volcanic ash. Between the financial strife of 2008 and the Eyjafjallajökull eruption of 2010, Iceland went through a rough patch, yet the fallout on tourism and hotels was relatively short-lived.
The Boston Consulting Group’s “The future of tourism in Iceland” reported small drops in visitor numbers from 2008 to 2010, while overall visitation more than doubled in the decade from 2002 to 2012 to approximately 700,000.
Now the industry is rising from the ashes and getting on with business, according to hotel industry consultant Viktoria Sveinsdottir, founding partner at Locus Capital Group in Orlando, Florida, and organizer of February’s Iceland Tourism Investment Conference & Exhibition.
“The tourism industry is developing and new attractions are opening up all over the country. Promote Iceland, a partnership of private and public entities, has set new goals for 2017 and is focusing on increasing the awareness of Iceland as a year-around destination and decreasing the seasonality in tourism for all the regions,” she said.
The knock-on effect of all that for hotels is considerable, with supply now lagging behind demand, Sveinsdottir said.
“The industry is evolving in the variety of hotel offerings, from boutique to larger hotel openings,” she said.
She said global hotel chains also are increasing their presence. Hilton Worldwide Holdings and The Rezidor Hotel Group are both already in the market and venturing toward more properties. Meanwhile, Marriott International, Starwood Hotels & Resorts Worldwide, Hyatt Hotels Corporation and others all have feet on the ground looking to secure deals.
“There has been some growth in the overall hotel room supply, and we can expect about 1,500 to 2,000 more rooms by 2017, from a current 8,000 to almost 10,000,” she added.
Demand growth has “way outstripped” new supply, Sveinsdottir said.
The need for more hotels has never been greater, Sveinsdottir said.
“Record high occupancies and sold-out nights has allowed the market to increase rates substantially over the last few years. There are still lots of scope for further growth in rates, especially with the arrival of the high-end product in the market,” she said.
An April report from the Icelandic Tourist Board said hotel supply has risen steadily since 2000 nationwide, jumping from 11,213 in 2013 to 12,017 in 2014—while tourism’s share of foreign exchange earnings grew from 18.8% in 2010 to 27.9% in 2014.
Overnight stays, meanwhile, hit 174,323 in April 2015 compared to 157,418 in April 2014, according to Statistics Iceland. That’s despite a bump in the value-added tax on hotels, which increased from 7% to 11% in January.
The VAT hike has not affected business at the Radisson Blu Saga Hotel Reykjavík, said GM Ingibjörg Ólafsdóttir.
Additionally, she said the hotel industry cleared a hurdle of seasonality, which previously saw half of all visitors arrive between June and August.
“Hotels, particularly in Reykjavik, are seeing an increase in occupancy the whole year,” she said. “There’s no longer a low season. December and January are the quietest months, but still running at 60% to 70% (occupancy). Hotels no longer run on summer staffing, which gives more consistency in service and profits. The yearly occupancy in some of the city-center hotels is running over 85%, and has increased consistently since the crash.”
Further proof of greater year-round demand is the Rezidor Hotel Group’s decision to rebrand the Icelandair Hotel at Keflavik International Airport into the Park Inn by Radisson by the third quarter of 2015.
Hotel owner, Bjarni Pálsson, said the move reflects Iceland’s growing hospitality market. “The brand’s standards and Carlson Rezidor’s knowledge will open new opportunities to us and increase our competitive advantage,” he said in a news release.
In recent months, there’s been a small flood of new hotel projects announced by both homegrown and global groups. In early June, Icelandic chain Fosshotel opened the country’s largest property: the 4-star, 320-room Fosshotel Reykjavík.
Setting the stage for growth
To meet future demands, Ólafsdóttir said, important steps need be made to gear infrastructure to greater visitor numbers.
“Big improvements are required with airport and roads, and more top-level attractions. ... There are still numerous entrepreneurs running one-man shows, and whilst it is charming, it's not feasible. The state needs to work with the travel industry on a long-term tourism strategy, instead of building power stations and the likes,” Ólafsdóttir said.
Current peak performance is still centered in coastal capital Reykjavik, Ólafsdóttir said. Given the growing economic importance of tourism, the government needs to step in and promote countrywide development.
“The City of Reykjavik has done a lot in terms of creating events, and it would help if the state of Iceland would encourage the same for the whole country,” she said.
Ólafsdóttir also said greater sophistication is required for evaluating the industry on a national scale.
“With a clear vision, there is considerable room for growth. Industry data is currently limited and needs to be collected systematically, which would help preventing the ‘black’ economy which is far too big,” she said.
The country’s hotel market also would benefit from an infusion of global brands.
“Icelanders have a mentality of always knowing the best, which is why there are so many local brands. Though the hotel business is booming, I don't expect a big growth in international brands, as local brands are still getting funding from the banks. Hopefully some of the new developments will eventually be branded, as this improves industry professionalism considerably. ... My hotel is seeing the benefit of global branding, and enjoying the tools, knowledge and sales force that go with that,” she said.
Such professionalism and pulling together by the industry, Ólafsdóttir said, will help make the industry more crisis-proof in the future.
“If we are not careful and don't have a long-term vision and don't cooperate fully, we might lose a great opportunity and face a new crash,” she said.
As to the volcanic ash, Sveinsdottir thinks the threat is extinct.
“The type of volcanic eruption we experienced in 2010 is very rare. The flight regulations have since been changed, too, so an ash cloud should not affect the air traffic like before. There have actually been two eruptions since without disrupting international fights. ... Volcanoes and eruptions are a part of living in Iceland and help make our landscape so spectacular and different from anything else.”