Lögberg-Heimskringla - 15.07.1994, Blaðsíða 4

4 • Lögberg-Heimskringla • Föstudagur 15. júlí 1994
Odd Routes
Help lcelandair
Survive
Þingvellir
By Peter Passell
The planes were
always jammed, the
flights were usually
late and prudent
travelers brought
along their own sandwiches.
But long before Freddie Laker
or People Express Icelandair
(then called Icelandic) was
breaking all the economic
rules of airlines, making
money by opening Europe to
the backpack set — among
them a graduate student, Bill
Clinton, on his way to Oxford.
Now, three decades later
the little airline that could is at
it again, repositioning itself as
the intemational carrier whose
flights all stop in a country
that is hardly anyone’s final
destination. And improbable
as it may seem, tiny, unsubsi-
dized Icelandair may once
again have found a formula for
success in an industry where
mere survival is considered a
triumph.
“There’s gold in not follow-
ing the herd,” said Michael
Roach, an airline consultant
based in London.
Using a Loophole
Icelandair began domestic
service in the late 1930’s as the
lifeline for an island the size of
Ohio with long, dark winters
and few paved roads. But the
airline that evokes nostalgia
among the baby boomers real-
ly dates from 1955, when it
began to exploit a loophole in
tight regulations that restricted
capacity and kept fares high
on trans-Atlantic routes.
Amenities were not a prior-
ity on the Icelandair flights
from New York to
Luxembourg, with a stop in
Iceland. And since most pas-
sengers were headed for Paris
or Bmssels or Amsterdam, the
long uncomfortable flight was
usually followed by a long,
uncomfortable bus ride.
But the stop in the middle
did give tens of thousands of
20-somethings the option of
lingering to ogle Iceland’s
bizarre volcanic scenery.
Besides, the crowd was socia-
ble and the price was right.
Since Icelandair was not a
member of the International
Air Transport Association, it
was able to undercut the
group’s fares, sometimes by as
much as a third. And since the
tiny airline “simply was not a
threat,” notes Daniel ICasper, a
consultant at Harbridge
House in Massachusetts, the
major airlines were inclined to
swat it out of existence.
By the late 1970’s, howev-
er, Icelandair’s formula for
profitable co-existence was
undone by changing technolo-
gy and deregulation. Direct
competition came with the
rise of discount carriers and
the effective collapse of cartel
pricing over the Atlantic. And
the costs of operating the air-
line’s DC-8 jets were far higher
than those of the jumbos used
by the other airlines.
Icelandair survived the
early 1980’s by laying off
roughly one-third of its 1,500
employees and leasing out
underused aircraft to carry
Muslim pilgrims to Mecca. But
the airline remained a margin-
al operation and its managers
were determined to recapture
the initiative.
At first look, that task must
have seemed hopeless.
Icelandair has virtually no nat-
ural customer base — the pop-
ulation of Iceland is less than
that of Norfolk, Va. Nor does
it have the glamour of, say,
Singapore Airlines or the rep-
utation for reliability of a
Swissair, which would draw
deep pocketed business travel-
ers.
But in today’s airline mar-
ket, notes Mr. Kasper, small
size and a lack of fixed busi-
ness mission (beyond prof-
itability) are not necessarily
disadvantages because they
permit rapid adjustment to
changing markets. “Icelandair
is a classic niche player,” he
said, an airline with the poten-
tial to feed on traffic that is
beyond the notice of global
carriers.
“We’re mainly concerned
with our major competitors,”
said Todd Clay, a spokesman
for Delta Air Lines.
What is more, points out
Einar Sigurðsson, the director
of marketing for Icelandair,
his airline does have some
inherent strengths offsetting its
inherent weaknesses. For one
thing, Icelandair shares run-
ways and an air traffic control
system with the Keflavík air
base of NATO — a base built
to push aircraft in and out in
all weather conditions. That
means zero congestion and
rare delays. Equally important
perhaps, in the late 1980’s the
carrier’s utterly obsolete air-
craft and the sense of urgency
felt by both stockholders and
employees gave Icelandair’s
managers the freedom to plan
from scratch.
“We just didn’t have much
choice,” recalls Sigurður
Helgason, Icelandair’s chief
executive.
Busy Twice a Day
Icelandair created a hub-
and-spoke route system, with
every plane from North
America (three a day during
the summer, typically two in
the winter) stopping in the
morning at the mint-fresh
Leifur Eiríksson air terminal
to transfer passengers to
European flights. This minuet
is reversed in the late after-
noon, with daily westbound
planes from Luxembourg and
Copenhagen and less frequent
service from another dozen
European cities connecting
with planes bound for the East
Coast of the United States.
Last year three-quarters of a
million passengers went
through the terminal — three
times the population of
Iceland.
Icelandair’s work horse to
North America is the Boeing
757-200ER, while the Iceland-
Europe spokes are mostly
flown on Boeing 737-400’s.
Both are extremely fuel-effi-
cient, low-maintenance air-
craft, and both are among the
smallest jets capable of flying
long distances over water.
Just as the aircraft were
chosen to match the realities
of a thin hub-and-spoke sys-
tem, the service was tailored
to fit the realities of a market
in which the name of the game
is figuring out how to separate
full-fare passengers from bar-
gain hunters. Icelandair’s
economy class, with fares. that
generally beat the competition,
is still as tight as herring in
brine. But better-heeled travel-
ers now have the option of a
business class with roomier
seating, better food and drink,
separate check-in and lounges,
even limos to the airports.
Seeking Its Niche
Does this add up to a win-
ning formula for the airline?
Not on high-density routes,
where other carriers fly non-
stop, business travelers are
accustomed to royal treatment
and those riding in steerage
benefit from heavy competi-
tion on fares. Indeed, the
whole idea of creating an
intemational hub in the mid-
dle of the Atlantic might seem
a problem. “Hubbing is out of
fashion,” notes Alfred E.
Kahn, the former chairman of
the Civil Aeronautics Board,
largely because the costs of
squeezing a lot of traffic
through a small window of
time and space are generally
high.
But a closer look explains
why Icelandair made a total of
$9 million in 1990 and 1991
on revenues of $420 million,
and lost just $5 million on rev-
enues of $400 million during
the recession years of 1992
and 1993 while most other air-
lines were hemorraging cash.
Start with low costs — “lower
cost per available seat-mile
than any European airline,”
Mr. Roach points out. And
while hubbing may be a mbced
blessing for most carriers, it
still makes sense for
Icelandair.
A Prime Spot
Keflavík airport is never
congested and contrary to
intuition, Iceland lies on the
shortest line between North
America and northem Europe.
Note, too, that the hub allows
Icelandair to provide competi-
tive service where one-stop
service is the only way to fly —
Glasgow to Orlando, Fla., for
example, or Washington-
Baltimore to Stockholm.
“Would you rather change
planes in Newark?” Mr.
Sigurðsson asks.
While an end to the reces-
sion in Europe and an uptum
in trans-Atlantic travel are
likely to return Icelandair to
profitability in 1995, there are
reasons that its survival is
hardly taken for granted. Any
of a dozen major airlines has
the legal right to fly to Iceland.
Much-prized business travel-
ers are hard to piy loose from
the major carriers. And
Iceland’s membership in the
European Economic Area
means that even routes within
Iceland will be open to inter-
national competitors by 1997.
But Icelandair’s managers
think they can turn risk into
advantage. Low costs will
allow them to compete on
point-to-point service within
Europe, Mr. Helgason sug-
gests, permitting the airline to
diversify away from the trans-
Atlantic trade and use aircraft
that would otherwise sit idle
in the winter. Then, too,
Icelandair’s modest size,
which makes it more an irri-
tant than a competitor to
other airlines, reduces the
chances of retaliation by the
giants. “We have the flexibility
to move when we’re not wel-
come,” Mr. Helgason notes.