Icelandair operates what it calls a “24-hour hub” at Keflavik International Airport. In the morning, its aircraft take off for all the destinations in the East. They reach Europe around midday and start the return flight early in the afternoon. Because of the 2-hr. time difference compared to most of Europe, the fleet is typically back in Keflavik at around 3-4 p.m. The North America operation starts toward late afternoon, which is not a problem because Iceland is already so far west from continental Europe. The fleet arrives in the U.S. and Canada in the early evening and returns to Keflavik the next day in the early morning, right in time to leave for Europe.
The airline is also a mixture of legacy and low cost. It has three classes: a business class, premium economy and regular economy. Business is not comparable to what others offer on transatlantic routes. It is more like a domestic first-class flight in the U.S., and in economy food is not free. “We believe in the hybrid concept,” Holm says. He does not want to disclose Icelandair's unit costs other than saying they are somewhere in between low-fare and full-service airlines.
Historically, the routes have been short enough for one aircraft to fly all of this and be back in time for the next turn. But Icelandair has slowly departed from the pure and most-efficient model by introducing more longer westbound routes. It could do so because of the low ownership costs involved with flying 757s. In 2009, it started parking aircraft in the U.S., sometimes for 20 hr.
Seattle was a turning point. Icelandair had been looking at introducing the destination before. It seemed ideal: It was right at the edge of the 757 range from Kevlavik, but it was already served by three European carriers – Lufthansa, British Airways and SAS Scandinavian Airlines. Then, SAS pulled out after more than 30 years of serving the market. As much as that decision was a symbol of the decline of what was once Scandinavia's dominant airline, it was also a symbol of the rise of Icelandair.
Seattle involved parking the aircraft because, had it returned immediately, it would have missed the morning departure wave to Europe in Keflavik. Icelandair decided to take the risk and keep it on the West Coast for most of the day. The first year was tough economically, one official says, but Seattle has since become one of the most profitable routes in the entire network.
Encouraged by the West Coast success, Icelandair was persuaded to deviate more from high utilization: Its aircraft also stay overnight in Denver, Orlando and soon in Anchorage, Alaska.
Transatlantic connections have grown to become by far Icelandair's most important business. Only a few years ago, they made up around 26% of its traffic. But the airline was forced by circumstances to reduce its dependence on its struggling home market. The share of connections had risen to 47% in the second quarter of 2013, and Holm says there is no real limit to where it can go “as long as it is profitable and the infrastructure in Iceland can handle it.” That also means the Icelandic home market is no longer a limiting factor to the airline's growth.
In 2012, its fleet consisted of 16 Boeing 757s, 15 -200s and one -300. Many of the aircraft are ex-Iberia and most have subsequently been equipped with winglets. The addition of winglets has been hugely important for Icelandair because they added around half an hour of possible flying time. Concerns about bad weather diversions are now a thing of the past for most sectors.
For 2013, Icelandair added another two ex-American 757s and next year the growth will be even greater. Three more aircraft will join the fleet as the carrier opens a trio of new destinations—Vancouver and Edmonton in Canada, and Geneva in Switzerland. While Vancouver was seen as a no-brainer since Seattle worked out so well, Edmonton is a different case: it has only one Air Canada long-haul flight, and while Edmonton is a big city, it is also unknown territory. But in many ways, it fits Icelandair's criteria: the airline is not after the most heavily traveled routes anyway, where the majors and their joint ventures dominate. It is trying to fly underneath their radar screen and connect markets where it has an advantage. The new Anchorage route, for example, cuts elapsed travel time to Europe by more than 3 hr.