Tourism in Iceland: Modest angle of attack
Arion Research 13 September 2019 Table of contents
• Main Findings (p. 3) • Foggy Skies (p. 4) • More affluent Tourists (p. 16) • Iceland has become less expensive (p. 30) • Tourism is Labor intensive (p. 39) Main Findings • The number of tourists to Iceland has declined by roughly 13% YoY in 2019. A change in Icelandair´s passenger mix has mitigated the effect of WOW air bankruptcy on the number of tourists. YTD number of passengers travelling with Icelandair to Iceland rose by 30% YoY while total number of passengers only rose by 11%. • Based on Isavia´s winter schedule, we expect 20% YoY decline in the number of available seats, flying to and from Iceland, this coming winter. • We expect tourism in Iceland to recover gradually following WOW air´s bankruptcy. Our base case assumes 2% growth in number of tourists in 2020. Grounding of Boeing MAX 8 aircrafts hinders Icelandair´s growth ambitions in 2018 and 2019. Stronger growth in number of tourists mostly rests on whether a new airline or airlines begin operations. • On average each tourist visiting Iceland in 2019 has stayed greater number of nights and spent more money, whether in ISK or in their own currency. Therefore, contraction in the tourist sector is likely to be less severe than we were concerned with at the beginning of the year. We highlight three contributing factors; progress has been made in attracting more affluent tourists, changes in Icelandair´s passenger mix and more reliable data on number of actual overnight visitors. • Increased number of overnight stays per visitor and growing demand for hotels has cushioned the effect of fewer tourists on the accommodation market. However overnight stays in Airbnb have declined significantly as well as overnight stays in vehicles. Surveys show that visitors travelling with WOW air spent on average a shorter period of time in Iceland and were more likely to stay in hostels and apartments than other visitors. • The average price of an overnight stay in a hotel room in Reykjavík this summer declined YoY, and the occupancy ratio has come down, causing revenue per room to contract considerably. • Depreciation of the ISK has alleviated the effect of fewer tourists as Iceland no longer holds the top spot on the list of the most expensive countries to visit. • The demise of WOW air and subsequent contraction in number of tourists has caused number of tourist related jobs to contract. Despite that net migration to Iceland could exceed 4,000 people in 2019. Fewer jobs coupled with a growing work force increases competition in the labor market and contributes to a growth in unemployment. • There is a strong seasonality in the Icelandic labor market, especially in number of tourism related jobs. We expect that at the end of 2019 tourism related jobs will be around 2,000 fewer than at the end of 2018 and that unemployment rate will climb to around 4% by the end of the year.
3 Foggy skies
Development after WOW air’s collapse and tourist arrival scenarios
4 17% decrease in tourism since WOW air‘s collapse Number of tourists began to decline in the beginning of the year, as WOW air had already reduced its fleet by roughly half before its operations stopped in late March
Number of tourists and YoY change last 12 months 25%
250.000
15%
150.000
5% 50.000
-5% -50.000
-15% -150.000
-250.000 -25% Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19
Tourists YoY change
5 Sources: Icelandic Tourist Board In recent years tourism has moved in tandem with changes in the Icelandic airlines capacity However, the relationship does not appear to be as strong this year as it has been. Following WOW air’s collapse, the outlook is for a 35% YoY decrease in total number of passengers flying with Icelandic carriers while we are only estimating a 15% decline in tourist arrivals this year.
Icelandair and WOW air capacity growth and tourist arrivals via KEF airport
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40% 2013 2014 2015 2016 2017 2018 2019e
Icelandair and WOW air Tourists
6 Sources: Icelandair, WOW air, Icelandic Tourist Board, Arion Research Why have we not seen greater decline in tourist arrivals? Mainly because Icelandair‘s passenger mix has changed significantly from last year. Passengers travelling to Iceland with Icelandair have increased by 30% YoY, while total passengers in Icelandair‘s route network has increased by 11%
YoY growth in Icelandair's route network YoY growth - YTD - YTD
30%
44% 41%
11%
33% 32% 29% Total To Iceland 25%
19% Icelandair's passenger mix - inner circle 2018, outer 2019 15% 13% 13% 14%
9% 8% 9% VIA To 7% 41% 44% 36% 3% 51%
12% Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19
Passengers Passengers to Iceland 15% From 7 Sources: Icelandair, Arion Research Since WOW air‘s collapse, two out of three tourists have travelled with Icelandair Icelandair‘s share in tourist arrivals was 40-50% when WOW air‘s fleet was at its peak
Icelandair's share in tourist arrivals to Iceland 350.000 90%
80% 300.000
70%
250.000 60%
200.000 50%
40% 150.000
30% 100.000
20%
50.000 10%
0 0% Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18Sep 18 Oct 18 Nov 18Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19
Tourists Tourists travelling with Icelandair Icelandair's share
Sources: Icelandair, Icelandic Tourist Board, Arion Research. 8 *Assuming that every passenger travelling to Iceland with Icelandair is a tourist as well as 25% of VIA passengers, which historically have used the company‘s „Stopover“ concept What if Icelandair‘s passenger mix had remained unchanged? If it hadn´t been for the shift in Icelandair‘s passenger mix, we assume that tourists YTD would have been around 100 thousand fewer than what we have seen so far. The YTD decline would thus have been around 20% instead of 13%.
Number of tourists and YoY change 250.000 30%
20% 150.000
10%
50.000
0% Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 -50.000
-10%
-150.000 -20%
-250.000 -30% Number of tourists Number of tourists assuming unchanged passenger split from 2018 YoY change YoY change assuming unchanged passenger split from 2018
9 Sources: Icelandic Tourist Board, Icelandair, Arion Research Airlines external environment has been relatively stable this year. Key question is whether air fares continue their downward long- term trajectory? Statistics Iceland‘s latest measurements suggest that seasonal fluctuation in air fares is diminishing
Jet fuel and air fares 1.200 160
140 1.000
120
800 100
600 80
60 400
40
200 20
0 0 2014 2015 2016 2017 2018 2019
Jet fuel, USD/ton (l.axis) Air fares, =100 2014 (r.axis)
10 Sources: Bloomberg, Statistics Iceland, Arion Research Air fares: 42 months down, 3 months up…then down again In the first three months after WOW air‘s collapse, air fares increased YoY. However, in July they returned to the same old declining trend according to Statistics Iceland
International air fares to and from Iceland - YoY change 15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
Jul 15 Jul 16 Jul 17 Jul 18 Jul 19
Apr 15 Apr 15 Oct 16 Apr 16 Oct 17 Apr 17 Oct 18 Apr 18 Oct 19 Apr
Jan 15 Jan 16 Jan 17 Jan 18 Jan 19
11 Sources: Statistics Iceland 7% increase in seat capacity from non-domestic carriers Fourteen airlines have announced that they will offer scheduled flights to Iceland in the Winter 2019-20
1,8m. Seat capacity in Winter 2019-20* 100% 500.000 seats 100%
400.000 80%
53% 60% 300.000 35% 37% 40% 200.000 27%
9% 20% 4% 100.000 -1% 0% -17% 0 -20% -17% -37% -100.000 -40%
-200.000 -60%
-300.000 -80%
-400.000 -100% Icelandair EasyJet Wizz Air Norwegian SAS Finnair British Transavia Lufthansa Atlantic Air Baltic JET2.Com Air Airways Airways Greenland
Seat capacity Change from previous year
Sources: Isavia, Arion Research. *Winter schedule is period from 1.11-31.3. Czech Airlines is missing in the chart above. The carrier announced daily flights from 12 Keflavik airport to Prague with layover in Copenhagen. Possible seat capacity from new WOW air also missing Around 20% fewer seats available this winter According to Isavia‘s Winter schedule. Space left behind by WOW air will only be met to a small extent.
Seat capacity in 2019-20 winter schedule 4,0 3,6 3,5
3,0 0,07 0,07 2,8
2,5 0,92
2,0
1,5
1,0
0,5
0,0 Number of seats 2018-19 WOW air Icelandair Other airlines Number of seats 2019-20
Sources: Isavia, Arion Research. *Czech airlines seat capacity not included as mentioned on previous slide as well as possible seat capacity from new 13 WOW air Our base case assumes slow start after the belly flop in March Based on airlines already operating. Even if the grounding of the B737 MAX aircrafts would be lifted soon, we expect delays in deliveries of new aircrafts to Icelandair. Thus, we assume a roughly unchanged capacity for Icelandair between 2019 and 2020. Tourist arrivals via KEF airport - millions annually, % increase 2,5 5% 4% 7%
-15% 2% 2,0
1,5
1,0
0,5
0,0 2018 2019 2020 2021 2022
14 Sources: Icelandic Tourist Board, Arion research This time, there‘s more upside potential in our scenarios Development in number of tourists this year has been in line with a pessimistic scenario provided in our 2018 report following the demise of WOW air. This time we feel that there is more upside potential than downside risk in our base case forecast. In our optimistic scenario, we are assuming that Icelandair will operate according to its original fleet plan in 2020 as well as WOW air will return to the air. However, in our pessimistic scenario, we assume that grounding of the B737 MAX aircrafts will last in to 2020 with Icelandair reducing capacity YoY as well as a new airline not being established. Three scenarios - millions, annually and YoY change 3,0
6% 2,5 8% 10% 4% 2% 7% 2,0 3% 5% -6%
1,5
1,0
0,5
0,0 2018 2019 2020 2021 2022
Base case Pessimistic scenario Optimistic scenario
15 Sources: Icelandic Tourist Board, Arion Research More affluent Tourists
The mix of tourists seems to have changed recently, raising consumption per tourist considerably Fewer tourists means less revenue The number of tourists decreased by 13,4% YoY in the first eight months of the year. Export revenue from tourists in the service trade balance has decreased by 15% at a constant exchange rate mainly due to less revenue from air transport.
Tourist arrivals via KEF Foreign payment card Export revenues of foreign airport turnover travelers - YoY %-change - YoY %-growth 80% - YoY %-change, constant exchange rate 80% 60% 70% 50% 60% 60% 40% 50% 30% 40% 40% 20% 30% 10% 20% 20% 0%
10% -10% 0% 0% -20%
-30% -20% -10% -40% -20%
-40%
Jul-17 Jul-18
Jan-17 Jan-18 Jan-19
Mar-17 Mar-18 Mar-19
Sep-17 Nov-17 Sep-18 Nov-18
2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2
May-17 May-18 May-19
Floating exchange rate
Jul-18 Jul-19
Jul-17 Travel Air transport
Apr-17 Oct-17 Apr-18 Oct-18 Apr-19
Jan-18 Jan-19 Jan-17 Constant exchange rate
17 Sources: Iceland Statistics, Iceland Tourist Board, The CBI, the Center for Retail Studies, Arion Research Total consumption of tourists has increased in ISK Total export revenues from foreign travelers has not decreased much in ISK. Putting air transport aside consumption of tourists has increased in ISK despite 13,4% fewer tourists!
Export revenues of foreign travelers - bn. ISK at floating exchange rate, YoY inside columns 600
500
1% 4% -21% 400 11%
300 8%
-1% 200 11% 20% 11% 5% 2% 16% 36% 9% 100 33% 22% 21% 24% 0% 27% - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Travel Air transport
Sources: Iceland Statistics, Arion Research Consumption per tourist has increased considerably
Consumption per tourist - YoY %-change 20%
15%
10%
5%
0%
-5%
-10%
-15% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Constant exchange rate Floating exchange rate
19 Sources: Iceland Statistics, The CBI, Arion Research What differentiated tourists flying with WOW air A big part of them were from North America, they stayed slightly shorter than others, stayed more in hostels and Airbnb and spent less overall than tourists flying with other airlines.
Nationality of tourists traveling with WOW air Average number of overnight stays
6,6 6,5 Nordics 6,5 6,4 6,4 UK 6,3 Central and South Europe 6,2 6,1 Eastern Europe 6 6 North America 5,9 5,8 Asia 5,7 Others WOW air Icelandair Other airlines
Type of accommodation by tourists Average spending per tourist 50% - thous. ISK
40% 250 200 30% 150 20% 100 10% 50 0% Hotels Hotel apartments Airbnb and Hostel 0 similar Allt árið WOW air Icelandair Other airlines WOW air Icelandair Other airlines
Sources: Iceland Tourist Board, Arion Research More reduction in the number of tourists from North America Roughly estimated WOW transported around 40% of tourists from North America last year, it is therefore not surprising that a larger drop in the number of tourists visiting from USA and Canada than most other countries.
Nationality of tourists Total number of tourist arrivals via KEF airport traveling with WOW air - thousands and YoY %-change 600 7% 4% 8% 11% 500
400 -30% 26%
300 -4%
44%
200 -13% 2% -3% 100 -7% -23% 12% -3% Nordics -8% -3% -6% 7% -7% -16% UK -2% -9% 19% -4% Central and South Europe 0 Eastern Europe North America Asia Others 2018 2019
21 Sources: Iceland Tourist Board, Arion Research Americans are valuable tourists They spend more than the average tourist while they tend to stay shorter than the average tourist
Consumption per tourist by Registered overnight stays Consumption per nationality in 2018 per tourist by nationality in overnight stay by nationality - thous. ISK at constant exchange 2018 in 2018 rate - thous. ISK at constant exchange 7,0 400 rate 90 350 6,0 80 300 5,0 70
250 60 4,0
200 50 3,0 40 150
2,0 30 100 20 1,0 50 10
0 0,0 -
UK
UK UK
Italy
Italy Italy
USA
USA USA
Total
Total Total
Spain
Spain Spain
China China
Japan
Japan Japan
Russia
Russia
France Poland
France Poland France Poland
Finland
Finland Finland
Norway
Norway Norway
Canada
Canada Canada
Sweden
Sweden Sweden
Denmark
Denmark Denmark
Germany
Germany Germany
Switzerland
Switzerland Switzerland
Netherlands
Netherlands Netherlands
22 Sources: Iceland Statistics, Iceland Tourist Board, The CBI, Arion Research Tourism remains the biggest export industry
Tourist arrivals via KEF airport Share in total exports - millions 100% 2,5
90% 27% 26% 25% 25% 30% 29% 28% 27% 29% 29% 80% 2,0 70% 15% 17% 17% 21% 20% 15% 60% 22% 20% 26% 24% 1,5 50% 20% 16% 18% 19% 22% 40% 26% 23% 27% 1,0 26% 30%25%
20% 42% 39% 39% 37% 31% 0,5 29% 24% 26% 10%19% 20%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Tourism Seafood Industrial goods Other
Sources: Iceland Statistics, Iceland Tourist Board, Arion Research * Arion Research´s forecast The average tourist stays around 24 hours longer than last year Since WOW air´s bankruptcy overnight stays per tourist has increased by 17% on average. Iceland Tourist Board survey shows that tourists travelling with WOW air tended to spend fewer nights in Iceland than tourist travelling with other airlines.
Average number of overnight Registered and unlisted overnight stays per tourist stays - overnight stays per tourist and YoY %-change 6,6 25% 7
6,5 20% 6,5 6
6,4 15% 6,4 5 10% 6,3 5% 4
6,2 0% 3
6,1 -5% 2 6 6 -10%
1 5,9 -15%
-20% 0
5,8
Jul-18 Jul-19
Apr-18 Oct-18 Apr-19
Jan-18 Jun-18 Jan-19 Jun-19
Feb-18 Mar-18 Feb-19 Mar-19
Aug-18 Sep-18 Nov-18 Dec-18
May-18 May-19 5,7 WOW air Icelandair Other airlines Total overnight stays per tourists (r.axis) YoY %-change (l.axis)
24 Sources: Iceland Statistics, Iceland Tourist Board, Arion Research Fewer tourists but the same number of overnight stays! Overnight stays in hotels have only decreased by 0,1% since WOW air went bankrupt at the end of March, despite 17% fewer tourist arrivals
Overnight stays in hotels and number of tourists - YoY %-change, April - July 60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Number of tourists Overnight stays
Sources: Iceland Statistics, Iceland Tourist Board, Arion Research 25 Airbnb has taken a hit Since WOW air went bankrupt overnight stays in Airbnb have decreased by 13%, mostly due to a fewer nights being spent in Airbnb in the Capital area.
Overnight stays on Airbnb in 2019 - YoY %-change 15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Total Capital Area Countryside
26 Sources: Iceland Statistics, Arion Research Tourists are spending more nights at hotels and fewer in other type of accommodation The passengers of WOW air tended to stay less at hotels than passengers of Icelandair last year.
Foreigners overnight stays Type of accommodation by - April - July, millions and YoY %-change tourists 2,0 50% 1.0% 1,8 45% 1,6 40% 1,4 35% 1,2 30% 1,0 -5.5% 25% 0,8 20% -12.9% 0,6 15% 0,4 10% 0,2 12.6% 5% -40.2%
0,0 0% Hotels and Webpages similar Other, registered Cars, unpaid Private-home Hotels Hotel Airbnb and Hostel guesthouses to Airbnb accommodation, apartments similar unpaid WOW air Icelandair Other airlines 2018 2019
27 Sources: Iceland Statistics, Arion Research Icelandair´s different passenger mix has had an effect About 25% of via passengers are stopover passengers who typically stay shorter. Less emphasis being put on via passengers should lead to fewer stopover passengers leading to longer average stay of tourists and more consumption per tourist. VIA passengers Icelandair's passenger mix in - % of total traffic through the airport 2018
50% 13% 13% 45%
40%
35%
30%
25% 36% 38%
20%
15%
10% Stopover passengers Transfer passengers Passengers traveling to Iceland 2013 2014 2015 2016 2017 2018 2019 Passengers living in Iceland
28 Sources: Isavia, Icelandair, Arion Research The number of tourists has been overestimated Self connecting passengers are sometimes counted as tourists. Wow air´s demise is likely to have reduced the number of self connecting passengers leading to a better estimate of the actual number of tourists. This could partly explain more overnight stays per tourists being counted and a considerable growth in consumption per tourist.
Total number of tourists according to Icelandic Tourist Board's manual counting - in millions 2,5
10% 11% 2,0
1,5
1,0
0,5
- 2017 2018
Tourists Self-connect passengers/same-day visitors Living in Iceland
Sources: Iceland Tourist Board, Arion Research Iceland has become less expensive
A weaker ISK supports tourism and prices of hotel rooms have slid both in ISK and EUR. Occupancy ratio has come and we expect it to settle around 73% Not the most expensive country anymore!
Sure, Iceland is expensive, and in 2018 it was probably the most expensive country in Europe to spend time with prices being on average 56% higher than in the EU and 44% higher than in the US. That is not the case anymore after a depreciation of the króna, coupled with modest inflation, it has again gotten cheaper to visit Iceland. It can now be assumed that Iceland is around 40% more expensive to spend time in than the average EU country and 24% more expensive than spending time in the US.
Relative prices - indices, EU = 100 180
160
140
120
100
80
60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
EU Iceland Denmark Norway Switzerland US
Sources: Eurostat, Arion Research. * First seven months of 2019. Hotel rates have declined, both in ISK and EUR
Lower price has probably supported occupancy rates, as they have declined less than number of tourists. Reduction in occupancy rates, coupled with lower price has led to considerable contraction in Revenue per Available Room.
Average daily rate in Reykjavík (ADR) ADR and RevPAR of hotel rooms in - %-change from last year Reykjavik 5% - %-change from last year 4%
2% 0% 0%
-2% -5%
-4%
-10% -6%
-8%
-15% -10%
-12%
-20% -14% Jan 2019 Feb Mar Apr 2019 May Jun 2019 Jul 2019 Jan 2019 Feb Mar Apr 2019 May Jun 2019 Jul 2019 2019 2019 2019 2019 2019 2019
Constant exchange rate Constant price ADR RevPAR
Sources: Statistics Iceland, Nordic Statistics, Benchmarking Alliance, Arion Research 32 Prices of hotel rooms in the capital area are still high compared to other Nordic countries
There seems to be more seasonality in prices of hotel rooms in Reykjavík compared to other Nordics capitals. Survey shows that average price for hotel room in Reykjavik in July decreased by around 12% YoY in EUR. Hotel room ADR in Nordic capital areas - euros 250
200
150
100
50
0
01.2010 04.2010 07.2010 10.2010 01.2011 04.2011 07.2011 10.2011 01.2012 04.2012 07.2012 10.2012 01.2013 04.2013 07.2013 10.2013 01.2014 04.2014 07.2014 10.2014 01.2015 04.2015 07.2015 10.2015 01.2016 04.2016 07.2016 10.2016 01.2017 04.2017 07.2017 10.2017 01.2018 04.2018 07.2018 10.2018 01.2019 04.2019 07.2019
Oslo Stockholm Helsinki Reykjavík
33 Sources: Benchmarking Alliance, Arion Research Occupancy rates have gone down The average occupancy rate of hotels in the Capital area has gone down due to a growing supply of rooms alongside with fewer tourists. However the occupancy rate is still high in comparison to other Nordic cities.
Hotel room occupancy ratio - capital area
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010 2014 2016 2017 2018 2019
34 Sources: Statistics Iceland, Arion Research. New rooms starting to welcome its guests
So far this year 270 new rooms have opened and 120 more are expected to be opened before the end of the year. In addition to this, around 900 rooms are under construction, and around 1,150 rooms are in development. In our opinion, it is unlikely that all development projects will realize. Neither do we expect that all development projects to be ready before 2023.
Arion Research’s hotel room forecast in Rooms Year Status the capital area Room with a view - Vegamótastígur 7-9 40 2019 Finished 7.000 Oddsson - Grensásvegur 16a 77 2019 Finished Centerhotels - Plaza (expansion) 54 2019 Finished Centerhotels - Laugavegur 95-99 101 2019 Finished 6.000 City Park - Ármúli 5 (expansion) 27 2019 In construction Von Guldsmeden - Laugavegur 55 52 2019 In construction Skipholt 29a 44 2019 In construction 5.000 Marriott Edition Reykjavik 250 2020 In construction Parliament Curio - Landsímareit 160 2020 In construction Íslandshótel - Lækjargata 128 2020 In construction 4.000 Radisson Red - Barónsreitur 195 2021 In construction Centerhotels - Héðinsreitur 153 2021 In construction Keahótel - Hallarmúli 2 162 2022 In development 3.000 Íslandshótel - Grand hótel (expansion) 100 2022 In development Íslandshótel - Hótel Barón (expansion) 100 2022 In development Skipholt 1 84 2022 In development 2.000 Guldsmeden - Grandagarður 2 95 2022 In development Laugavegur 176 120 2022 In development Hlíðarendi 360 2022 In development 1.000 Strandgata HFJ 126 2022 In development Total: 2.428 Construction started/finished 1.281 0
In development 1.147
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
FjöldiHotel herbergja rooms ÁætluðNew rooms viðbót (forecast)
Lok 2021 Year end 2021 end Year 35 Sources: Statistics Iceland, Reykjavik city, media reports, Arion research We predict 73% occupancy ratio in the coming years Increased capacity will put pressure on occupancy ratio in the coming years. However, increase in tourist arrivals later on in the forecast period coupled with longer stays offsets this. If the forecast realizes, we expect average occupancy rate to be similar as it was in 2012-2013
Arion Research's forecast for overnight stays and occupancy in the capital area - thousands 3.000 90% Forecast 80% 2.500 70%
2.000 60%
50% 1.500 40%
1.000 30%
20% 500 10%
0 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Base scenario Room occupancy (r. ax) Average occupancy in Nordic capital areas (2010-2017)
36 Sources: Statistics Iceland, Icelandic Tourist Board, Arion research We expect similar export revenues from foreign travelers in 2022 as in 2018 Based on our base case on number of tourists and given assumptions about tourist´s consumption.
Export revenues of foreign travelers - bn. ISK, at 2019 prices and exchange rate 600 Forecast
500
400
300
200
100
- 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Travel Air transport
37 Sources: Statistics Iceland, Arion Research. A slowing world economy decreases demand for travel How much effect might further slow down of the world economy have on Icelandic tourism? That depends on income elasticity. IATA´s passenger forecast has been lowered with worsening global economic outlook suggesting the demand for travel to be sensitive to income.
Annual growth in global air traffic passenger demand and global output - YoY %-change 10%
8%
6%
4%
2%
0%
-2%
-4%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Global air traffic passenger demand World output Advanced economies IATA's passenger forecast from 2018
38 Sources: IMF, IATA Tourism is Labour intensive
The labour force has had to grow considerably to make the growth of tourism possible, now however unemployment is set to grow. The growth of tourism has called for a bigger labour force Historically there has been a good correlation between economic growth and net migration to Iceland. Recently however the correlation has been broken, mainly because of how labour intensive tourism is. Since 2010 17,000 jobs have been created in tourism in Iceland which is 40% of all new jobs in the country this decade.
Correlation of economic growth and net The number of employees in tourism as a migration percentage of the total number of employees - % and number of people in Iceland 8.240 2,5% 10,0% 20%
6.556 2,0% 5.255 8,0% 18%
1,5% 6,0% 16% 4.056 1,0% 4,0% 14% 1.714 1.451 0,5% 2,0% 12%
0,0% 0,0% 10% -319 -0,5% -2,0% 8%
-1,0% -4,0% 6% -1,5% -6,0% -4.835 4% -2,0% -8,0%
2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 0%
Net migration as a percentage of the population (l. axis)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Economic growth (r. axis) 2008
Sources: Statistics Iceland, Arion Research. *The latter part of 2019 is forecasted 40 Net migration still considerable despite rising unemployment Unemployment among foreign citizens in Iceland has more than doubled in the last two years and has gone from 3.8% up to 7.3%. Despite that net-migration has remained considerable and we expect more than 4,000 foreign citizens will migrate to Iceland this year.
Registered unemployment among foreign Net migration of foreign citizens citizens in Iceland - monthly basis, (*) monthly average
16% 700 659 14% 600 556 12% 547 505 500 486 10% 7,3% 449 424 439 430
8% 400 341 6% 300 249 4% 200 2% 105 100
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 Registered unemployment among foreign citizens in Iceland 12 month moving average
Sources: Statistics Iceland, Directorate of Labour, Arion Research. 41 Competition increases in the labour market If migration stays the same as it has been in the first months after WOW air went bankrupt and the number of jobs stays roughly the same unemployment will rise and could go above 5% looking twelve months ahead given these assumptions.
Change since the bankruptcy of WOW air Unemployment - if migration stays similar to what it has been after WOW air went under and the number of jobs stays similar for a year
2.000 6% 1.576 1.500 5,1% 5% 1.000
500 4%
3,4% 0 3% -500
-1.000 2%
-1.500
-1.621 1% -2.000 Decrease in the number of jobs in Net migration of foreign citizens to tourism Iceland 0% Before After
42 Sources: Directorate of Labour, Arion Research. Decreasing number of employees in tourism We expect the number of employees in tourism to be two thousand fewer by the end of the year than at the same time last year. The number of employees in tourism is well correlated with the seasonality in number of tourist arrivals. Even so, we expect number of tourist related jobs to decrease more this autumn than mere seasonality suggests.
Number of employees in tourism Expected decrease in the number of 35.000 employees in tourism - between the end of 2019 and 2018 2.000 34.000 1.800 33.000 1.600
32.000 1.400
1.200 31.000 1.000
30.000 800
29.000 600
400 28.000 200
0 Number of employees Arion Research´s forecast Already happened Expected by Arion Research this autumn
43 Sources: Statistics Iceland, Directorate of Labour, Arion Research. We expect unemployment to rise Due to seasonality, fewer tourist arrivals, slower economic activity and pressure on costs we expect unemployment to rise and to be a close to 4% by the end of the year.
Registered unemployment 5%
4%
3%
2%
1%
0%
Registered unemployment Arion Research´s forecast
44 Sources: Statistics Iceland, Directorate of Labour, Arion Research. Contacts
Elvar Ingi Möller Erna Björg Sverrisdóttir [email protected] [email protected]
Halldór Kári Sigurðarson Head of Arion Research [email protected] Stefán Broddi Guðjónsson [email protected]
45 Disclaimer
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