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Foreign arrivals are down -12.2% from August 2009 and overnights by -9.6%. On a 12-month average basis, foreign arrivals are down -2.7% from August 2009 and overnights by -1.5%. This is the first time 12-month average figures are negative, so one wonders what motivates Icelandair to increase passenger flights by 17% next year.
“In August 2010, the total number of overnight stays in hotels was 187,700, while at the same time in 2009 it was 205,200. The total number of overnight stays decreased in all regions. Overnight stays in the North and East decreased by 18%, in the South region by 12%, in the Capital region by 6%, in the Southwest by 4% and in the West and West fjords and by 2% compared to August 2009. The number of overnight stays among foreigners decreased by 10%, while there was a decrease in overnight stays of Icelanders by 1% from the year before.” Statistics Iceland
There is a degree of skepticism in our camp about this move. There are still economic shocks to come that will affect markets Icelandair depends upon, like Ireland, Portugal, Spain, UK, and US, of which the UK makes up for 21.7% of capital region arrivals in Iceland and the US 10.6% using 12-month average rates.
The change in August’s 12-month rate to August 2009 is -0.1% for the UK and +5.4% for the US. Total change is -1.0%. Here it is proper to point out a peculiar phenomenon. May – December 2005, overall 12-month change in foreign tourist overnights is negative. The same takes place July 2007 – May 2008 and October 2009 – April 2010. Remember that this is change in share of total arrivals in the capital region, not countrywide.
Icelandair can afford to take chances following the company’s announcement August 12 2010:
“Icelandair Group hf. announced on 14 and 15 June 2010 that the Enterprise Investment Fund (EIF) and the Pension Fund of Commerce (PFC) had entered into a binding agreement with the Company to the effect that the two funds would invest in Icelandair Group for ISK 4 billion at a share price of 2.5. In the agreement EIF undertook to contribute ISK 3 billion, thereby acquiring 1.2 billion new shares in the Company. The PFC undertook to contribute ISK 1 billion, thereby acquiring 400 million new shares in the Company.”
Public money is here being used to fund an airline, which is a high-risk investment. Of interest, however, are the conditions:
“The agreements were concluded with the following conditions:
- Positive results of Icelandair Group due diligence.
- Exemption of the EIF by the Financial Supervisory Authority (FME) from an obligatory take-over of the Company.
- Achievement by Icelandair Group hf. of a minimum of ISK one billion in market value of new shares from other investors.
All of the above conditions have been met, and investors have subscribed to a total of ISK 5.5 billion at market value in new share capital, which corresponds to 2.2 billion new shares in Icelandair Group hf. “
Given the trouble at SAS and other airlines, there surely is a market opportunity for Icelandair. The difficulty believing this strategy is the condition of the financial markets, that are infested with bad debt. Icelandair intends to create 200 new jobs from the market increase, but there are signs that these jobs will be temporary unless the objective is to sell the airline or a portion of it. Delta and KLM will be flying to Iceland beginning next year and there is room for speculation whether the “ISK one billion in market value of new shares from other investors” will come from there. if not, we place our bet on Air China.
It is a gamble but it may actually pay off. Let’s hope so for the Icelandic people who have been made to invest in Icelandair with or without consent.