Air Transport World

Shifting the niche. (Icelandair)(Company Profile)

Reykjavik - Icelandair had a good thing going. As a privately owned airline, nonmember of IATA, it was not bound by the organization's rates. Ergo, it could offer extremely low fares between Europe and the U.S., undercutting the larger government-owned European carriers.

With its super low fares and operating direct Douglas DC-8 all-economy service between Luxembourg and New York, it had virtually all of Western Europe as its catchment area.

It also had a highly favorable a agreement with Luxembourg, which had an airport but no airline. That small, centrally located duchy was willing to offer very good landing and service fees, as well as allow Icelandair free rein on its fare structure. This provided a base in the middle of Western Europe with easy access to virtually any country, including the U.K. Icelandair had found its niche as the "hippies' airline."

However, nothing is forever. With regulatory reform in the early 1980s came lower prices throughout the European airline community - and a corresponding decrease in Icelandair's fare advantages.

By 1985, Icelandair realized it needed a total restructuring - a change of routes, fleet and operating philosophy.

Earlier this year, Icelandair celebrated its 50th Anniversary as an international carrier, based on the 1944 founding of Loftleidir, or Icelandic Airlines, as a transatlantic carrier.

Its actual history can be traced back to 1937, with the founding of Flugfelag islands, which was to provide domestic service throughout Iceland and to Europe. Islands is the Icelandic word for Iceland, not a land mass sitting in a body of water.

In 1973, the two airlines merged, retaining the name Icelandair - although the carrier still has trouble convincing the traveling public that its international operation is not still called Icelandic Airlines.

Despite the merger, Icelandair basically remained a dual-personality carrier into the early 1980s. The dominant operation was the DC-8 transatlantic service between Luxembourg and New York, alternating between nonstop service and direct service via Reykjavik. European service, using Boeing 727s, flew between Reykjavik and Scandinavia, the U.K. and primarily during the summer, central Europe.

The airline also had Fokker F27s for domestic service throughout Iceland.

However, led by Sigurdur Helgason, who still is president and CEO, the airline recognized the need for change in the mid-1980s, and began a shift to a linear hub-and-spoke operation that would provide feed between the U. …

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