Iceland’s unique geographical position provides Icelandair with significant strategic advantages. This is encapsulated in Icelandair’s ability to serve four markets simultaneously (to, from, via and within Iceland). In the morning Icelandair’s aircraft take off towards the east for all the destinations in Europe. They reach Europe at around midday and start the return flights early in the afternoon. The fleet is typically back in Keflavik in mid-afternoon, Icelandic time. The North America operation begins late afternoon and the fleet arrives in the US and Canada in the early evening and returns to Keflavik at the dawn of the next day, just in time to depart again for Europe.

The running of the 24-hour hub through the heart of the network at Keflavik Airport provides Icelandair with great flexibility to change its market emphasis in line with different conditions and the capability to serve a broad range of transatlantic markets with high aircraft utilization. Furthermore, it enables Icelandair to draw from a larger pool of potential passengers than point-to-point competitors flying to and from Iceland, and thus to fly more routes at a higher profitability. In addition, the hub location allows Icelandair to serve a wide range of transatlantic markets on a cost-efficient narrow body fleet. By mixing TO/FROM and VIA passengers in the same aircraft, Icelandair can fly to destinations that are not feasible for point-to-point competitors.

As travel restrictions in Europe and North America were implemented in early March, the via market was significantly reduced. Soon after that, Icelandair had to reduce its schedule to only 2% of its 2019 schedule. However, the flexibility of the route network operations was aptly demonstrated during the summer when Icelandic border restrictions were relaxed in June and restrictions in Europe partly lifted. Icelandair swiftly adapted its strategy in line with local conditions in Europe, adding new destinations to the network on a short notice, focusing on the to and from markets as the US and external Schengen borders were closed. This adaptability will be an important factor in the ramp-up of the network, as the vaccination process gains momentum and the spread of the virus diminishes.

Icelandair’s aim is to react quickly to changes in its markets and leverage the strong market position through its hub in Keflavik and in Iceland’s tourism market. Additionally, with reduced capacity of direct flights on the transatlantic market, opportunities may arise for Icelandair’s one stop product and the ability to connect Europe and North America with narrow body aircraft, leading to lower cost-base and attractive fares.

Icelandair has by far the largest network operated out of Keflavik Airport, offering maximum connectivity for passengers. Icelandair‘s route network serves four independent and distinct passenger markets – to, from, via and within Iceland.

The impact of the COVID-19 pandemic and related travel restrictions caused considerable drop in passenger numbers in 2020. Icelandair's focus during the year was on keeping vital routes open for passengers and cargo to and from Iceland. Due to the closure of the US and external Schengen borders, the via market decreased significantly in 2020. The market to Iceland accounted for 50% of the total number of passengers in 2020 compared to 40% in 2019, the market from Iceland accounted for 18% compared to 14% in 2019 and the via market accounted for 18% compared to 41% in 2019 when it was the Company's largest market. The domestic market within Iceland accounted for 14% of the total number of passengers in 2020 compared to 5% in 2019. In recent years, the United States has been Icelandair’s single largest destination country, while its European network focuses mainly on Scandinavia and Northern Europe, with the United Kingdom as the Company’s second largest destination country.

In 2019, Icelandair’s flight schedule was the largest in the Company’s history, growing by 3% from the year before, with the number of passengers just over 4.4 million. Focusing on profitability and sustainable growth, the number of passengers was projected at 4.2 million in 2020 with emphasis on the markets to and from Iceland. The first two months of the year gave reason to be optimistic, with an increase in the number of passengers to and from Iceland.

However, in early March 2020, the Company had to react quickly due to the effects of the COVID-19 pandemic. With a sharp decline in demand for travel, Icelandair’s flight schedule was immediately reduced. Travel restrictions in the US and various countries in Europe, and later at the Icelandic borders, heavily affected travel demand throughout the year. Travel restrictions were partially lifted mid-June, and the Company was able to respond quickly and expand its flight schedule until restrictions were tightened again in mid-August.

The total number of passengers in 2020 amounted to 891 thousand, a drop of 81% from the year before.

Following the spread of the COVID-19 pandemic, the situation was closely monitored. Various measures were taken according to guidelines of the health authorities to ensure the health and well-being of the Company’s passengers and employees. Icelandair flew several special flights to bring residents of Iceland home who were traveling abroad.

The Company placed special emphasis on efficient communication to passengers, with regular updates on the Company’s website, social media and through press releases, especially due to changes in the flight schedule and due to new rules that were implemented to ensure its passenger safety. Various health and safety measures were implemented on board the aircraft as well as across the Company’s operations. As an increased safety measure, wearing a mask was made mandatory on all Icelandair flight from mid-June onward. Service on board has been limited to minimize contact between passengers and crew members. On long-haul flights, food packed under the strictest safety conditions is served and a bottle of water is handed when boarding.

When it became clear that the epidemic would continue to affect the flight schedule for the next few months, Icelandair took various further measures, i.e., 20 aircraft were prepared for on-ground storage. Due to major changes to the flight schedule, cancellation of flights and uncertainty about the near future, new customer service measures had to be taken swiftly.

Icelandair emphasised providing passengers with flexibility. The Company trained 300 employees, including pilots and cabin crew, to help handling questions from its clients. A new cancellation policy was introduced to assist customers in these uncertain times. The Company also introduced a new solution called Travel Credit, that ensures customers receive a voucher instantly. Saga, an automated solution, was applied to help answering customers. The system handled over thousands of inquiries the first month, reducing considerably the number of calls in the call center. With these new technical and automated solution, Icelandair was able to complete the processing of the vast majority of refunds and travel credits during the year.

The near-term outlook for the operations of Icelandair remains challenging. Icelandair’s international passenger network will continue to be operated at a minimum level while travel restrictions are still in place parallel to limited demand for travel. However, the Company expects a modest ramp-up will begin in Q2 of 2021. Icelandair’s flights schedule will be adjusted accordingly. The route network has been simplified to strengthen Icelandair’s flexibility to respond quickly to the fast-changing market conditions and align capacity to demand at any given time. The focus is on Icelandair’s key markets to and from Iceland as well as providing convenient connections between Europe and North America.

After completing the most thorough global inspection process in aviation history, major aviation authorities around the world have recertified the Boeing 737 MAX as safe to fly, after almost two years on the ground. These include the Federal Aviation Administration (FAA) in the US, the European Union Aviation Safety Agency (EASA) and Transport Canada (TC). From early March 2021, the Boeing 737 MAX aircraft has re-entered Icelandair’s fleet. The aircraft is both cost-effective and more environmentally friendly, giving the Company additional operational flexibility during the ramp-up, as well as supporting the future development of its route network.