As September figures just came in, it was decided to update this post instead of making a new one. The charts have been spiced up a bit and the text has been adjusted to match. To enlarge the charts, just click on them.
The connection between Germany and Iceland dates back hundreds of years. Without Germans, it is doubtful we would know as much about our culture as we do. We actually owe German scholars a lot; just pick up any book an Icelandic history or the sagas and you will find one German scholar after another listed at source of some study or other. I myself am personally convinced that Icelanders are a Germanic tribe that fled to Norway (possibly to avoid Roman rule) and then fled from Norway to dodge Norwegian rule. Consider the attitude of the Icelanders … we consider ourselves to be a global powerhouse yet there are only 320 thousand of us. Germans have the exact same attitude.
Germans flock here in ever-increasing numbers. In 2011, almost 60 thousand Germans arrived through Keflavik airport (and we seriously need statistics on those that arrive by oceanic vessels!) and spent 3 nights in a hotel on average (hotel overnights clocked in at 170,000). The chart to the left shows yearly total overnights against yearly change, and September has set a new record as far as German tourists are concerned. A slight contraction occurred between 2010 and 2011, but traffic is back up again and with a vengeance. The greatest leap in overnights took place between 2009 – 2010, where the total number of German overnights climbed from 142 thousand to 172 thousand, or by 20.6%. In light of that, it is rather baffling how little – if at all! – Germans actively invest in tourism-related operations such as hotels over here. Opportunities are bountiful, the rate of the ISK weak compared to the EUR and the price of real estate, land and energy relatively cheap. Several outfits from Germany offer tours here, but none appear to consider establishing an actual – and permanent – presence here despite that being a strategically sound move. Iceland tourism is growing rapidly and those that want to move in ought to do so quickly.
The quadrachart to the left shows the development of German overnights in Iceland and Capital region from January 1997 to September 2012.
Chart 1: Observe the spike in July when German overnights pass the 50,000 mark (54,720 to be exact). Assuming that the average rate for a hotel room is ISK 20,000 (EUR 120) per night, total inflow from German tourists is ISK 1.1 billion or EUR 6.6 million. For the capital region, overnights come close to the 30,000 mark (29,937 to be exact), which creates a foreign currency inflow of ISK 600 million or EUR 3.6 million.
Chart 2: Flattening the data by applying a 12-month moving average clearly shows the trend in German overnights both nationwide and for the capital region. It also shows that after a dip following the economic collapse October 2008, the capital region is regaining market share.
Chart 3: Applying the share Germans have of total overnights – including Icelandic customers – shows an increase. Observe the blue line which reflects the balance between the capital region and nationwide overnights. There is reason to believe that the rise in that rate 2006 – 8 was a direct result of domestic investment activities. It is therefore an anomaly that should not be used for market share estimation. The share of German traffic against total tourism – including domestic – reveals that Germans have remained around the 10% mark since 1997 (third from top) which is very consistent and something that opens up possibilities on the investment arena.
Chart 4: The change in German overnights since December 1997 shows rapid growth that can be credited to focused marketing activities of Icelandic tourist authorities, hotels, transport firms and tour agencies – both domestic and foreign. As of September 2012, the growth in German overnights (12 month average) clocks in at 121.4%.
There is plenty of room to increase traffic even more. There are, after all, 82 million Germans; Iceland barely grazes the surface by attracting 0.006% of the nation. If we could attract 0.1%, we would receive 82,000 German tourists that, if each spends 3 nights in a hotel at ISK 20,000 a night, would result in ‘export’ revenue of 5 billion or EUR 30 million. Iceland seriously needs tourist traps that cater specifically to tourists from the central European region. Sure, Iceland has its nature and all that, but we really need to increase revenue inflow rather than give away more freebies. It is high time Iceland began to aggressively market itself and to transform its tourist services angle toward a much more profitable tourism industry angle. There is a major difference between the two. Then the government and tourism authorities need to think more long-term.
The chart to the left shows the share of arrivals, overnights and average overnights per arrival 2011 (statistics on arrivals ought to be updated at a monthly frequency!). While the US rank highest in arrivals and the UK ranks highest in overnights, Germany (with the UK) ranks highest in overnights per arrival, meaning that they are more profitable that US tourists. Other European countries fall far short, which means that there are major marketing opportunities present to expand the pie.
The bottom chart shows German arrivals, overnights and average stay, and there we detect an all-too-stable stay rate. It has gone up a notch, but we can do better. We simply need to make our hotels better or literally start thinking in terms of large-scale amusement and theme parks. Icelandic tourism thinks to small; we have the market, let’s think bigger and go get it!
Iceland needs direct foreign investment badly and given Germany’s interest in this economy, culture and country, it is nothing but amazing that Germany only contributed to 0.1% of total foreign investments in 2010 and 2011. Germany is not seizing an opportunity that other leading economies, among them China, are actively exploring. There are considerable opportunities in real estate, land, water and energy that ought to be considered. Many of them fit right into the German way of life, which practically guarantees cash inflows from German tourists. Such a move would also be met favorably by local and central governments as they are bound to create jobs.
Either German investors do not trust our economy, or they are overly risk averse. Either case is understandable, but there are ways to leverage risk when dealing with this type of micro-economy, especially under these circumstances.