Iceland Overheating. Will The Bubble Burst……
There is a history of hub failure, especially when large proportions of the traffic is connecting, low yield and vulnerable to new competitors. Ask Brussels and the sad demise of Sabena, or Budapest and Malev or Swissair and Geneva; it begs the question, is Keflavik set for a reset in its real capacity size?
This Winter there will be a staggering 14% increase in Europe – North America scheduled capacity as both long-haul low-cost and increased legacy services operate across an ever-busy pond. As the table below illustrates, the top ten legacy carriers are all planning to operate more flights than last Winter with some notable increases from Norwegian, Aer Lingus and Virgin, although of course they are really Delta Air Lines in disguise!
Couple this with services from new carriers such as Open Skies, French Bee, Primera Air and Air Italy, and it’s likely that there will be some very cheap fares available for a Wednesday trip to Detroit in January. And when that happens the impact on those airlines and airports relying on connecting traffic in the market will be even colder than an Artic wind.
There will be 17% more flights to and from Keflavik this coming winter and a slightly higher 20% increase in seats. Services will be operated to 77 destinations and whilst that is slightly less than operated last winter the destinations that have been dropped were merely shopping expeditions for both the airline and passenger. With more than three-quarters of capacity provided by the two locally based carriers their vulnerability is clear to see, especially when the cost of operations in Iceland are not the cheapest on the planet.
The first victim of what could be a very messy winter was the departure of the Icelandair CEO with the second profit warning announcement of the year. The planned operation of a five times weekly service to Delhi from WOW Air is either an inspired choice or sign of how far the issue is stretching the need for new markets. Either way it’s certainly going to be a shock for the body temperature connecting in Keflavik from Delhi.
In a classic case of time catching up with everything; the strategic advantage of Keflavik and its locally based airlines may just have been caught. Direct low-cost, long-haul services to secondary US airports does all that Keflavik offered without the stopover and at some very competitive prices.
And with Christmas looming on the horizon it may just be that in Keflavik there is plenty of room at the inn as the competition heats up and the chilly wind of falling yields and fixed operating costs hits.
- Written by John Grant