Business worsens for tourism companies in rural areas

Hotels located in remote parts of Iceland have seen a decrease in revenues and profits are diving for car rental companies.

From Namaskard. Credit: Iceland.is

Conditions under which Icelandic tourism businesses are operating have changed to the worse in the past years. Many local businesses price their services in a foreign currency, the Euro being the most common. The value of the Euro in relation to the Icelandic króna fell by 12.8% between the start of 2015 and the end of July 2018; at the same time the real wage index rose by 27.5%. According to statistics from KPMG, the real wage index in Iceland rose by 52.8% between early 2012 and until the end of July 2018, while the exchange rate of the Euro dropped by 22.4% during the same time period.

Hotels:
Hotels located in remote parts of Iceland have seen a decrease in revenues. Businesses in South Iceland, the Westfjords, and North Iceland saw a negative EBIDTA for the first six months of 2018. This trend seems to confirm speculations that tourists plan shorter stays in Iceland, chose to stay in Reykjavík, and do fewer trips to the Icelandic countryside.
The hotel sector in the Greater Reykjavík Area experienced growth between 2015 and 2017, the EBIDTA margin went from 6.4% in 2015 to 16.9% in 2017. Falling profits, however, hit hotels located in rural areas during the same time period, the EBIDTA margin dropped from 6.9% to 2.2%.

Car Rentals:
Car rental revenues dropped dramatically between 2016 and 2017, with profits diving from an average 6.3% to 0.5%. The main reason for this are increased wage expenses and capital expenditures.

Tour Operators:
Falling profits hit local tour operators between 2015 and 2016, mainly due to a stronger local currency and higher wage expenses. The same happened in 2017, with companies seeing an average loss of 1.7%, compared to 0.6% in 2016.