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All change in Iceland

Joe Bates discovers more about Icelandic airport operator, Isavia, and its development plans for Keflavik International Airport. 

When it comes to team building situations, few companies can have experienced something as dramatic as a volcanic eruption and ensuing ash cloud that closed most of Europe’s airports for five days to pull everyone together.

But this is exactly what happened at Icelandic airport operator, Isavia, when, on the eve of its formation, Eyjafjallajökull erupted sending a thick cloud of potentially dangerous volcanic ash into the atmosphere.

Picture the scene, after years of planning and discussion, the Icelandic government sets a May 1, 2010 date for the planned merger of Keflavik Airport Ltd – operator of Reykjavik’s Keflavik International Airport – and Flugstodir, which is responsible for the operation and development of all other airports and airfields in Iceland.

It promises that the formation of a single operator, Isavia, will create a dynamic new company that will have the focus, financial strength and operational flexibility to transform Iceland’s airport system.

Everyone agrees, the champagne is put on ice, and May 1 is eagerly awaited.

Then, on April 14, the totally unexpected happened – even for volcanically active Iceland – when the second phase eruption of Eyjafjallajökull sent a plume of volcanic ash into the sky that rose to a height of nine kilometres.

Within hours flights across much of Europe were grounded and airports began to close to traffic. In fact, many wouldn’t ‘open’ again for five days as the incident officially caused the highest level of travel disruption in Europe since WW2. In Iceland, all thoughts of the merger were forgotten as airport staff across the country worked together to try and keep its gateways open and keep the general public informed of developments.

As remarkable as it sounds, flight-wise, Iceland was one of the least affected countries in the incident as the ash cloud blew south towards mainland Europe and the UK. 

It did, nevertheless, force the closure of Keflavik for two days, during which time all operations were transferred to the still open Akureyri Airport in the north of the country.

The switch to Akureyri, a four-and-a-half hour drive from Reykjavik, involved the overnight transfer of hundreds of Keflavik based staff and equipment to the town located just a few kilometres from the Arctic Circle. 

Meanwhile national flag-carrier, Icelandair, ensured that it remained operational by temporarily relocating its transatlantic hub operations from Iceland to Glasgow Airport in Scotland.

Looking back to April 2010, Isavia’s managing director, Björn Óli Hauksson, admits that while the volcanic ash crisis wasn’t exactly ideal preparation for the company’s creation, in hindsight he believes that it acted as a ‘tremendous bonding exercise’ for staff and has helped make the airport operator the company it is today.

“Although I wouldn’t have wanted it this way, the good thing about the 2010 ash cloud is that it made all the people from Keflavik Airport Ltd and all the people from Flugstodir sit down with each other and come up with a plan on how to work together,” he says. 

“In terms of the physical move of staff from Keflavik to Akureyri, everybody moved overnight. We took about half our security staff and around 50% of Keflavik’s ground handling personnel came with us. Members of our operations team, air traffic controllers and many others joined them as everyone worked together in unfamiliar surroundings.

“I would say everything went extremely well in difficult circumstances and, if anything, it created a unique team building exercise that helped the merger go a little smoother than it might have done.”  

Hauksson adds: “The whole 2010 volcanic ash cloud incident amounted to about a month of stress and days that started at 7am and finished late at night, but by the end of it we had basically learned to work together, so the actual merger went almost unnoticed.”

Like the 2008 Icelandic Financial Crisis, the Eyjafjallajökull eruption – and, indeed, the smaller volcanic ash cloud spewed from Grimsvotn in 2011 – made Iceland global headline news.

The financial crisis, caused by the collapse of three major commercial banks, led to national bankruptcy fears as the Icelandic króna declined 35% against the euro and Iceland’s inflation rate hit an all-time high of 18%.

The dire situation led to a 25% decline in passenger numbers at Keflavik, and the subsequent loss in revenues that accompanied the traffic downturn was felt most fiercely in the airport’s duty free stories where big-spending Icelandic passengers all but stopped travelling.

Luckily, Iceland’s economy is now on the mend – the Organisation for Economic Co-operation and Development (OECD) says that Iceland exited its ‘deep recession’ in 2010 and predicts that it is heading towards economic growth of 3% in 2012 – and Isavia is confident that the next few years will be good ones for the nation’s airports.

However, Hauksson admits that the continued depressed state of the global economy means that Isavia has been forced to make “considerable re-adjustments” to its business plan.

In effect, this has meant delaying planned “non-essential” renovation and maintenance projects and putting investment on new infrastructure and equipment on hold.

And Hauksson has no qualms about stating that the search for new revenues has led Isavia to change its retail strategy to ensure that Keflavik’s duty free stores and other F&B outlets appeal more to foreign travellers than locals.

The decision is based on sound logic as a huge change in the passenger mix at Keflavik in recent years, triggered by the Icelandic Financial Crisis, means that foreign nationals now outnumber Icelandic passengers at the airport.

Indeed, Icelanders which traditionally accounted for 50% of the passengers at Keflavik, now account for just 40% as the airport’s hub status has grown for international passengers travelling between the US and Europe.

As a result, the number of transit passengers at Keflavik has almost doubled from 250,000 in 2007 to 460,000 last year – with around 30% of them being fed into Icelandair’s network by other carriers.

Hauksson says that the new passenger dynamic, principally caused by the development of Keflavik into Icelandair’s transatlantic hub, has changed the way it uses the airport and, as a consequence, Isavia has had to adapt and alter the way the terminal is utilised.

“We basically looked at ways of improving the way we utilised the terminal to ensure the quickest and smoothest flow through it for all passengers,” he notes. “It was more about changing passenger flows, processes and procedures than new equipment.” 

In 2007, a record 2.18 million passengers passed through Keflavik and a further one million used the country’s 12 other main gateways as Icelandic tourism levels reached an all-time high.

A sign of Iceland’s recovery from the dark days of 2008/9 is that it came close to matching those records last year when 2.11 million passengers (+17.9%) passed through Keflavik and a total of 834,563 (+4.6%) used the nation’s other gateways.

Hauksson is convinced that Keflavik’s traffic records will go up in 2012, predicting a 7.5% upturn in passengers by year-end followed by average growth of 4% per annum at the airport for the next five to ten years.

He says: “Some might consider these figures too cautious a forecast, but we cannot realistically expect annual increases of 17.9% into the future. We estimate that for the near future passenger numbers across our domestic network [Iceland’s other airports] will rise by 1.6% annually.”

Not surprisingly, Icelandair, is the biggest operator at Keflavik operating the bulk of its services to destinations across Europe and North America as it accounts for 70% of all passengers. With the exception of SAS and home-based low-cost carrier, Iceland Express, most international airlines serving Iceland operate seasonal flights to Keflavik.

They currently include Austrian Airlines, Delta Air Lines and Lufthansa and will shortly be joined by easyJet and Norwegian, which launch operations between Keflavik and London Luton and Oslo respectively this spring.

The top five international routes out of Keflavik are Copenhagen, London Heathrow, Oslo, New York JFK and Boston Logan.

The existing 15-gate terminal, one of the most distinctive in the world in terms of design, currently has ample capacity, as it is ultimately capable of handing in excess of 3.5mppa.

However, Icelandair’s determination to ensure swift connection times for transit passengers catching onward flights to the US or Europe currently ensures that the terminal experiences morning and afternoon peaks where gate space is at a premium.

In a bid to ease this congestion, Isavia plans on adding one or two new gates this year and a total of five by 2017, as well as increasing the use of bus transportation to aircraft parked on remote stands.

Isavia also has plans for a new arrivals terminal and an expanded apron that are expected to raise Keflavik’s capacity by 30% to 4.6mppa.

Hauksson says that the new terminal will be located only around 20 metres away from the existing one, which would then be exclusively used for departures. Isavia’s wish to keep its airline and passenger fees down is likely to mean that the new terminal is a much more “cost oriented” building that the existing $160 million terminal, according to Hauksson.

Work on expanding Keflavik’s apron is scheduled to commence in 2013 with construction of the new terminal expected to start a year later.

“With traffic on the rise again, going up 17.9% last year alone, we need to get moving,” enthuses Hauksson. 

“It is a challenge, but it is definitely much more fun dealing with the problems of congestion caused by an increase in passengers than worrying about decreasing traffic and not enough airlines.”

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