A Profitable 2023 for Icelandair Despite Q4 Challenges

Icelandair Boeing 737 MAX

Icelandair rebounded from years of losses to an ISK 1.5 billion [$11 million / €10 million] profit in 2023, with passenger numbers up 17% and plans for expanded flight service in 2024 despite fourth-quarter challenges.

A profit after a series of challenging years

In a report on its Q4 and 12-month 2023 performance, Icelandair revealed that the airline earned a profit of ISK 1.5 billion ISK in 2023 [$11 million / €10 million] in 2023, which is a significant turnaround from last year when the airline experienced a loss of ISK 800 million [$5.9 million / €5.4 million]. As noted by RÚV, Icelandair had previously reported losses since 2017. 

“It is an important milestone to report a profit after taxes for the entire year after challenging recent years. Revenue generation was very strong this year, and we successfully met the high demand across all our markets, especially from North America to Iceland,” Bogi Nils Bogason, CEO of Icelandair, told RÚV yesterday. He is positive about the outlook.

“The market to Iceland is rebounding following recent events, with Iceland remaining a sought-after destination. We are also seeing a higher proportion of bookings across the Atlantic than before. Our flight schedule for 2024 will be about 11% larger than in 2023, with 57 destinations, including three new ones – Pittsburgh, Halifax, and Vágar in the Faroe Islands,” Bogi Nils stated. 

The number of passengers flying with Icelandair was 4.3 million in 2023, an increase of 17% since last year. Seat utilisation for passengers within Iceland in 2023 also increased by 2%. The airline’s liquidity position amounted to ISK 44 billion ($323 million / €297 million) at the end of the year.

Fourth-quarter performance marred by geological unrest

Icelandair’s announcement highlighted that seismic activities, volcanic eruptions, and air traffic controllers’ strikes significantly impacted the airline’s fourth-quarter performance: “Following the news that the town of Grindavík was evacuated due to anticipated volcanic eruptions, bookings dropped significantly.” 

Mbl.is reported that shares in Icelandair had fallen by 6.9% during the first trades on NASDAQ Iceland this morning.

Icelandair’s Airbus Order Largest Transaction in Airline’s History

Keflavík airport Icelandair

Icelandair has signed an agreement with Airbus for the purchase of 13 A321XLR aircraft with purchase rights for additional 12 aircraft. The purchase is the largest in the company’s 86-year history. With the order, it is clear that the Airbus A321XLR aircraft will replace the airline’s Boeing 757-200 fleet.

Largest purchase in airline’s history

In April of this year, Icelandair and Airbus signed a memorandum of understanding for the purchase of 13 Airbus A321XLR aircraft with purchase rights for additional 12 aircraft. Yesterday, Icelandair announced that it had signed the aforementioned agreement. The purchase is the largest in the company’s 86-year history.

As noted by Flight Radar, the A321XLR is set to be certified in 2024, and the first aircraft delivered to Icelandair is expected to enter service in 2029. However, the company intends to have four A321LRs in operation before the summer of 2025, via a long-term lease through SMBC Aviation Capital Limited.

In an interview with RÚV, Bogi Nils Bogason, the CEO of Icelandair, was quoted as saying: “This is a very big contract and a major turning point for us. And the biggest contract that Icelandair has made in the company’s 86-year history.” While the purchase price is confidential, the transaction will, as noted by RÚV, likely run into hundreds of billions of ISK.

Asked how the company intended to finance the purchase, Bogi explained that Icelandair was a very sought-after entity by financiers, both by lessors and banks that are financing aircraft. “And we will use the financing that is most favourable at any given time,” Bogi added.

Set to replace Boeing 757-200 aircraft

Icelandair currently operates 17 Boeing 757-200 aircraft, which form the backbone of its fleet. Given the size of the airline’s investment in Airbus, it is clear that A321XLR is set to be a replacement product.

“Operators have been reluctant to let go of their ageing 757 fleets in recent years due to the lack of a replacement that could match its performance, range, and capacity,” Flight Radar notes. However, the new A321XLR aircraft offers three primary advantages (as noted by Flight Radar):

Range: “The A321XLR can fly around 800 nautical miles further than the 757-200.”

Capacity: “Icelandair’s 757-200 aircraft currently seat 184 passengers in two classes, whereas the A321XLR fitted with the ‘Airspace Cabin’ will typically seat around 220.”

Sustainability: “Though figures are not yet available for the A321XLR, the currently available A321LR represents up to a 19% CO2 saving per seat per kilometre compared to a Boeing 757-200 on a similar sector according to data from IBA NetZero.”

Switching aircraft manufacturers entails several challenges: “This is a challenge,” Bogi told RÚV. “But at the same time, this is a very exciting and fun project. All of our staff are happy and excited about it. This will, of course, require training for our flight crew, which will begin to do soon.”

Icelandair Begins Scheduled Flights to Detroit

Keflavík airport Icelandair

Yesterday, Icelandair inaugurated its scheduled flight service to Detroit, Michigan. The airline plans to offer seasonal service to Detroit four times a week, Vísir reports.

“Bridging Motown and Europe”

At 17 PM yesterday, Icelandair embarked upon its first scheduled flight to the Detroit Metropolitan Wayne County Airport (DTW) in Detroit, Michigan. As noted by Vísir, this marks the airlines return to the city after a brief stint in the 1980s. Presently, Icelandair serves thirteen destinations across the United States, and the addition of the Detroit route aims to cater to the sustained demand for travel to Iceland, as American tourists constitute the largest group visiting the country.

“Icelandair is pleased to offer a refreshing new choice when travelling to Detroit. Our new flights will offer business and leisure travellers more options to and from Iceland and beyond,” Bogi Nils Bogason, President & CEO of Icelandair Group, observed. “These new flights will open the doors for inbound and outbound travellers to make Detroit a relevant gateway in our network, boosting tourism and trade to and from the Motor City. We are excited to help bridge Motown with Europe and look forward to welcoming Detroit aboard.”

As noted in an article on Market Screener, Detroit is the birthplace of auto manufacturing in the United States, the second-largest regional economy in the American Midwest, and home to the legendary Motown music scene.

One Icelandair Departure Per Day from Keflavík

Keflavík airport Icelandair

Icelandair had one scheduled departure from Keflavík International Airport today. Only one Icelandair flight departed from the airport yesterday and the schedule shows a single departure tomorrow and two on Wednesday. Nine airlines are currently flying to and from Iceland. RÚV reported first.

Icelandair operated flights to Copenhagen, Denmark and London, England last weekend. The airline is operating flights to Boston and Amsterdam in the coming days as well.

There are around five departures scheduled departures per day at the airport. Other airlines show upcoming departures to Riga, Latvia; Warsaw, Poland; Nuuk, Greenland; and Frankfurt, Germany. EasyJet is operating one flight daily from Keflavík to Luton Airport, London.

Icelandair recently completed a successful public share offering, a key facet of its financial restructuring. A successful offering was a prerequisite of a state guarantee of 90% for a line of credit for up to $120 million (about ISK 16.5 billion). Though it has received government support in various forms since the COVID-19 pandemic began, the privately-owned airline has struggled, cancelling nearly three-quarters of its September flights.

“We simply can’t fly flights where there are few passengers and very little demand and we can’t fly flights at an operational loss. That simply doesn’t add up in the long term and not in the short term either in the situation we are in now,” stated Bogi Nils Bogason, Icelandair’s CEO.

Government Guarantees Line of Credit for Icelandair

Keflavík airport Icelandair
The Icelandic government has decided to guarantee a line of credit for Icelandair airline. The guarantee amounts to ISK 16.5 billion ($121 million/€101 million).
Negotiations between Icelandair group and the Icelandic government have taken place in recent weeks, in co-operation with the airline’s banks, Íslandsbanki bank and Landsbankinn bank. The initiative is subject to the two parties reaching an agreement on the terms, the approval of the Icelandic Parliament, and the success of Icelandair’s planned refinancing initiative.
Icelandair has postponed its public stock offering from August until September. Úlfar Steindórsson, chairman of the airline’s board, told Vísir that the reason for the postponement is a delay in negotiations with credit holders as well as the airplane manufacturer Boeing, due to problems with their Max 737 planes. Icelandair had to ground a number of Max 737s and an agreement was in place for the purchase of additional aircraft.

Icelandair CEO Bogi Nils Bogason stated earlier this month that the prerequisite for the government line of credit was that the company’s planned public stock offering was successful. The two factors are intertwined, however, as investors require the details of the line of credit terms.

Icelandair and Cabin Crew Association Reach Agreement

Icelandair cabin crew

The five-year contract signed between Icelandair and the Icelandic Cabin Crew Association (FFÍ) is a “defensive victory,” according to FFÍ chairperson Guðlaug Líney Jóhannsdóttir. It was a relief to come to an agreement following the “very heavy and complicated” negotiations, Guðlaug told Vísir reporters.

FFÍ and Icelandair signed a contract after 3.00am this morning, closing a 16-hour meeting and months of tense negotiations. FFÍ members unanimously rejected a contract offer from Icelandair in May. The signed contract includes increased work contribution on the part of cabin crew while ensuring their job security, according to the two parties.

“The airline’s demand for streamlining was very great and we were prepared to make concessions to meet the company during these difficult times and in that way we really show through actions that flight attendants are willing to do their part,” stated Guðlaug. She says FFÍ nevertheless managed to defend job security within the profession, which Icelandair had taken out of previous offers. “We are very proud of that today.” Guðlaug did not want to discuss the details of the contract until after it is presented to FFÍ’s members tomorrow, but says news of the contract signing was well-received.

“It is really gratifying to have come to a long-term agreement with cabin crew which is an important part of the financial restructuring and part of increasing its long-term competitiveness,” stated Bogi Nils Bogason, Icelandair’s CEO. Icelandair’s largest shareholders’ hinged their approval of the company’s financial restructuring on the signing of long-term contracts with the airline’s employees.

Icelandair Lays Off Record 2,000 Employees

icelandair757

Icelandair laid off over 2,000 employees yesterday, representing the vast majority of their staff. RÚV reports that nearly 900 of the airline’s 940 flight attendants have been let go, as well as 421 pilots, with only 26 pilots remaining in the company’s ranks. It is the biggest mass layoff in Icelandic history, exceeding the number of layoffs resulting from WOW air’s bankruptcy last year (both direct and indirect).

At the beginning of March, Icelandair had 3,400 employees. The airline laid off 240 at the end of March. The company’s remaining staff is either subject to a reduced employment ratio or salary cuts.

Minimal operations continue

The Icelandic government made a short-term contract with Icelandair to sponsor a number of flights to London, Stockholm, and Boston, which ends May 5. The airline also recently signed a contract to operate 45 cargo flights from Shanghai, China to Germany and the US.

Opposition MPs have criticised the government for not doing more to support the airline, which many consider to provide an essential service. Government ministers have pointed to the airline and its shareholders as responsible for the company.

Icelandair CEO hopes to rehire staff in future

Icelandair CEO Bogi Nils Bogason expressed his hope that the company would be able to rehire the staff soon. “Of course we hope so, these are all great employees and when the country starts to rise again and markets open, then we will be ready to jump in […] and we hope it will happen sooner rather than later, but at this point in time we cannot make any promises when and how that will happen.”

Icelandair to Transport Medical Supplies Between China and Europe, US

Icelandair has signed a contract to operate at least 45 cargo flights between Shanghai, China and Munich, Germany, transporting medical and nursing supplies, RÚV reports. The airline will also fly from Shanghai to Chicago in the US with stopovers in Iceland. The flights will operate daily, starting on Saturday.

Three of Icelandair’s Boeing 767s will be temporarily converted for the cargo operation. Each will be crewed by 12 people, while another 100 Icelandair employees will be involved in different aspects of the project.

While the contract with cargo company DB Schenker calls for a minimum of 45 flights, it also stipulates that daily flights from Shanghai will continue for the duration of the COVID-19 pandemic, so it’s probable that more will be added in the near future.

Icelandair also signed another lease agreement with another party for a fourth Boeing 767, which will also be used for cargo shipments of medical and nursing supplies between China and Europe.

“This is important revenue for the company, from aircraft that would have otherwise been grounded,” remarked Icelandair CEO Bogi Nils Bogason. “…This also creates work for our people – the preparations, organisation, and implementation are all taking place here in Iceland, in addition to the flights themselves, and all with our excellent employees.”

The new cargo contracts and any work they can create are certainly welcome; just one day ago, Bogi Nils told reporters that extensive layoffs on par with those that the company was forced to make after the 2008 banking collapse were “unavoidable” in the coming week.

Extensive Layoffs ‘Unavoidable’ at Icelandair

Icelandair

Icelandair CEO Bogi Nils Bogason says that the airline will have to resort to “painful measures” at the end of April in order to respond to the devastating economic impact the COVID-19 pandemic has had on the company, RÚV reports. Bogi Nils has stated that further layoffs are “unavoidable” and will be announced as soon as next week.

“Today we’re operating about 5% of our flight schedule and we don’t know how long this situation will last, whether it will be three, six, or nine months,” Bogi Nils stated. “As such, we’re just preparing ourselves for this period of uncertainty and the enormous revenue shortfall that we’re going to have to address by lowering our costs in order to get through this and be in a stronger position when the demand resurges again.” He continued that the airline expects to operate a very sparse flight schedule over the summer months.

In light of the expected layoffs, Icelandair executives have met with shop stewards and union representatives. Bogi Nils emphasized that Icelandair hopes to rehire most of the employees that have been or will soon be laid off, but this may be a rather long time coming.

Icelandair laid off roughly 500 employees during the 2008 banking collapse, the most extensive mass layoff in the company’s history. Bogi Nils says that the airline is currently looking at layoffs on that scale, extending across all divisions of the company. “These are really painful measures,” he said. “As we have fantastic employees working for us, many with extensive work experience who have done a great job and worked for the company for a long time.”

Bogi Nils repeated, however, that the company fully intends to rehire staff when the market improves, and that Icelandair does not intend to sell off any part of its fleet at this time. “We are fully confident that the market will recover again and that Iceland as a destination has great potential in the future and that the airline hub in Keflavík, between North America and Europe, will have a lot of potential when this uncertainty ends. That’s our assessment. So we intend to use our fleet in the future, to get through this strong and seize our opportunities at the end of all this uncertainty.”