The geological turbulence on Reykjanes peninsula and associated news coverage probably accounted in large part for lower tourist numbers than we had expected in November. It was the first month since we published tourism projections in our macroeconomic forecast from September that actual visitor arrivals were below our forecast. Even so, figures from the Icelandic Tourist Board show that more than 150,000 foreign nationals departed the country via Keflavík Airport during the month, equalling the previous November record, set in 2018. Departure numbers were 9% higher than in November of last year, the slowest year-on-year growth rate since the aftereffects of the pandemic started to abate early in 2022.
Tourist numbers up in November despite earthquake news
November tourist numbers were below our forecast, presumably due in large part to the seismic unrest on Reykjanes peninsula. Nevertheless, foreign nationals’ departures via Keflavík Airport were broadly on a par with the pre-pandemic peak for the month of November. The outlook is for some 2.2 million visitors to Iceland in 2023 and for the tourism sector to generate around ISK 600bn in foreign exchange revenues.
Americans have been the largest nationality group in the recent term, apart from the winter season, but this time, British travellers were the most numerous, accounting for 24% of the total. Tourists from the US came in second, at 20.5% of the total, after declining in number by just over one-fourth YoY. Next in line were visitors from Poland (5.9%), Germany (3.0%), and Spain (3.0%). The three largest Nordic countries – Denmark, Norway, and Sweden – accounted for a combined 3.2% of the total. Insofar as one can draw conclusions about the impact of the seismic threat on travel to Iceland, it can perhaps be inferred that Americans and Germans were the most likely to be affected by the media coverage, while British and Italian tourists appeared relatively impervious to it. Other factors that play into tourists’ travel behaviour include flight availability and the economic situation in their home country.
Notably, Chinese visitors accounted for 2.8% of foreign nationals’ departures from Keflavík Airport in November. Chinese tourists were few and far between in the immediate aftermath of the pandemic, but they seem to be travelling here in greater numbers once again.
Icelanders stepped up their own travel in November
Icelanders, too, were fairly keen to pack their bags and head overseas, with a YoY increase in departures on the heels of an abrupt contraction in October. A good 43,000 Icelandic nationals departed Keflavík Airport for points abroad in November, about a fourth more than in the same month of 2022. In 2023 to date, Icelanders’ departures are up by about 2% YoY, although they are still approximately 10% below the peak from the same period in 2018.
The Central Bank (CBI) will publish payment card turnover data for November later this week. Given the month’s developments in international travel, it seems likely that payment card-related FX flows – which we generally refer to as the payment card turnover balance – was at best in equilibrium.
Tourism generates nearly a third of FX revenues for 2023
Tourism-driven FX revenue generation has picked up strongly in the recent term, after being in hibernation at the height of the pandemic. According to Statistics Iceland (SI), the tourism sector generated nearly ISK 489bn in gross export revenues over the first three quarters of the year, an all-time record in nominal terms. Although earthquakes and the threat of a volcanic eruption on Reykjanes peninsula put a spanner in the works, we think that setback will prove to be transitory – provided that the next few months do not bring a severe natural disaster.
In September, we projected that some 2.2 million tourists would visit Iceland this year. The figures for the first 11 months of the year – just under 2.1 million foreign visitors – fit well with that forecast. We have also estimated gross FX revenues from tourism at roughly ISK 600bn in 2023 as a whole, and the most recent data suggest that this forecast, too, will prove at least reasonably accurate. The tourism industry will therefore provide almost one-third of Iceland’s FX revenues for this year, based on our export revenue forecast from September.
