How Iceland's Tourism Bubble Deflated : The Indicator from Planet Money The tourism explosion in Iceland helped the tiny island recover from the 2008 financial crisis, but did the tourism industry grow too big, too fast?

How Iceland's Tourism Bubble Deflated

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


Hey, everyone. Just wanted to let you know that this is part two of a two-part series that we are doing about the Icelandic economy, so if you haven't already listened, please go check out yesterday's episode first.


GARCIA: Hey, everyone. This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

ALEXI HOROWITZ-GHAZI, BYLINE: And I'm Alexi Horowitz-Ghazi, a producer with Planet Money. For most of its modern history, the tiny volcanic nation of Iceland has been dependent on two things - geothermal energy and fishing.

GARCIA: In fact, back in the 1960s, the country's economy was so dependent on fishing that there was a kind of herring bubble that collapsed in the late 1960s. But in the 2000s, the country turned to banking and bet big on the island's future as a financial services hub.

HOROWITZ-GHAZI: Money flowed in initially, but when the financial crisis hit, Iceland was hammered. Unemployment spiked, and the country's debt levels soared. And then Iceland blew up, literally.


UNIDENTIFIED PERSON #2: Bleyerkell (ph).

UNIDENTIFIED PERSON #3: Eyafiaplyakadul (ph).

UNIDENTIFIED PERSON #4: Eyfiakaurkel (ph).

UNIDENTIFIED PERSON #5: Eyafyamajakuru (ph).

GARCIA: So when a volcano that notoriously unpronounceable name sent a huge plume of ash over Europe, it seemed like it might have just been adding insult to injury.

HOROWITZ-GHAZI: Instead, Eyjafjallajokull presented an unexpected opportunity and ended up showcasing Iceland's extraordinary natural beauty. And once the skies had cleared, the tourists started coming.

GARCIA: Because of all that new demand for flights to Iceland, an entrepreneur named Skuli Mogensen saw an opportunity to compete with the national carrier. That was Iceland Air. And so he started a discount airline called WOW Air.

HOROWITZ-GHAZI: WOW sold tickets at bargain basement prices, and the tourists came in droves. Palli Borg, former director of business development at WOW, says that Icelanders across industries were eager to jump on the tourism bandwagon.

PALLI BORG: I think it is just in their genes. If there's a new type of fish that comes into our waters, basically, we just go full at it. And everybody has a new boat, and they try to get that. This time, it was tourism. Last time, it was banking.

HOROWITZ-GHAZI: So tourists were kind of the new fish.

BORG: Absolutely.

HOROWITZ-GHAZI: Within a few years, there were enormous schools of tourists washing up on the black, sandy beaches of Iceland, and everyone from big hotel developers to the average farmer began to get in on the action. By 2016, tourism had become both the country's largest export and its biggest private employer.

GARCIA: Arnar Mar Olafsson is the marketing director and part owner of one of the country's big tour companies, Icelandic Mountain Guides. He says that initially, the rapid growth in tourism inspired a much-needed boost to the economy.

ARNAR MAR OLAFSSON: There was a whole new clientele that came because they were so cheap, and there were a lot of activity companies that popped up everywhere. And people started to get positive again and hopeful, and it was a good period.

GARCIA: But Arnar says it soon became clear that the country's infrastructure was not prepared for that kind of breakneck growth in its tourism industry, and after a quick break, we'll see how the surge of foreign visitors stretched this tiny island nation to its breaking point.


GARCIA: By 2017, Iceland was hosting upwards of 2 million tourists a year, meaning there were more than six foreign visitors for each native Icelander. Arnar Mar Olafsson, who works for one of Iceland's biggest tour operators, says that the country just was not ready for that kind of massive influx.

MAR OLAFSSON: I think that this will be taught in textbooks in universities around the world in a few years.

HOROWITZ-GHAZI: What do you think the main lesson will be from the Iceland chapter in that book?

MAR OLAFSSON: I think I would say good things happen slowly, and this happened, I think, too fast.

GARCIA: Arnar adds that the surge of visitors was often concentrated in a small number of natural attractions within a few hours' drive of the capital, many of which didn't have parking lots, restroom facilities or visitor centers to handle them. And that, Arnar says, threatened many of the natural wonders that had made the country an appealing destination in the first place.

HOROWITZ-GHAZI: A few hours' drive outside the capital, I visit Geysir - you know, like geyser - basically the Yellowstone of Iceland and one of the country's most popular natural attractions. Environment Agency ranger Oskar Ljundsen (ph) leads me through a patchwork of bubbling thermal pools and steaming vents.

OSKAR LJUNDSEN: The main Geysir, which all other geysers in the world have the name after, is also here.

HOROWITZ-GHAZI: That one's the O.G. That's the original Geysir.

LJUNDSEN: Yes, that's the O.G.

HOROWITZ-GHAZI: Oskar tells me that overcrowding has led to erosion and environmental damage in some areas and that rangers often have to deal with visitors crashing drones and tossing coins into the pools. A few days earlier, someone dropped their cell phone into a popular hot spring.

LJUNDSEN: We couldn't reclaim it.

HOROWITZ-GHAZI: They didn't even get to post to Instagram.

LJUNDSEN: Yeah, that was the worst thing about it, I think.

HOROWITZ-GHAZI: They were going to get so many likes.

LJUNDSEN: Yeah. It's all about the likes.

HOROWITZ-GHAZI: Oskar says that social media has been a double-edged sword, helping to attract tourists but often too many too fast. A canyon a few hours away, for example, experienced a dramatic spike in popularity in part because of its starring role in a 2015 Justin Bieber music video.


JUSTIN BIEBER: (Singing) My life is a movie, and everyone's watching.

LJUNDSEN: It's a beautiful canyon. It has become a big attraction. Justin Bieber kind of started it, but then it spread.

HOROWITZ-GHAZI: It's just the beginning.

LJUNDSEN: I guess, yeah - before and after Bieber.

HOROWITZ-GHAZI: Oh, yeah. That's our new aging system - B.B. and A.B.


GARCIA: According to the environmental agency of Iceland, in the years after Bieber, it's estimated that that particular site saw more than a million new visitors, which caused enough environmental damage that the government temporarily closed it down. And in less than a decade, Iceland had become one of the hottest tourist destinations in the world despite those environmental issues that it raised, and tourism had grown to account for more than 8% of the country's GDP. So when WOW went bust earlier this year, it meant that one of the country's main economic channels had been cut off.

HORDUR BENDER: It was disappointment. It was - what's going to happen? It was a bad time for Iceland.

HOROWITZ-GHAZI: Hordur Bender is one of the many Icelanders who moved back home in the wake of the banking collapse and bet big time on the tourism boom. After moving back from Sweden, he helped open a whale museum for tourists and even served on WOW's board of directors for a few years early on. He also poured his money into a farm outside Reykjavik, where he now offers horseback riding lessons and tours.

GARCIA: Hordur says he lost 40% of his bookings the week after WOW collapsed, and since then, he's been down another 20%. And like many business owners in Iceland, Hordur worries that the true impact of WOW's collapse won't be fully felt until the slower winter season gets underway.

HOROWITZ-GHAZI: But he says there is a silver lining. The slowdown will give the government an opportunity to improve infrastructure and, ultimately, to help safeguard the country's economic future.

BENDER: Before, we were, like, industrial. We were selling energy, aluminium melting, stuff like this. But now with the tourism, all of a sudden, politicians and the people of the country realize the true value of clean nature.

GARCIA: Tourism experts say that the impact of WOW's demise on the peak tourist season was less catastrophic than it could have been. It was roughly a 16% decline in visitors this year. Still, Iceland's Central Bank is now forecasting that the Icelandic economy will shrink for the first time since the financial crisis, and it has cut interest rates to their lowest level in almost a decade to try to stimulate the economy. This has all raised concerns about the country's overdependence on such a volatile industry as tourism.

HOROWITZ-GHAZI: The trick to rebuilding sustainably may be to escape the mentality that WOW executive Palli Borg says fueled the banking collapse and, in some ways, characterized the tourist boom.

BORG: I think that it was kind of close to the hearts of a lot of Icelandic people that it's just this short-term rush, and we like it, and we love it. We're not big believers in planning long-term. We're not planting seeds that are going to flourish in 15 years' time. We want to see something in two years.

GARCIA: Palli says that despite this year's dip in visitors, the tourism boom that WOW Air helped to ignite has fundamentally reshaped the country's economy and that, for better or worse, those changes are likely here to stay.

BORG: There used to be in the old days that herring had this strange smell and was called the smell of money, and I think that the sound of money today is the tourists dragging their luggage behind them.

HOROWITZ-GHAZI: And sure enough, as I made my way to the airport to catch a moderately expensive one-way flight out of Iceland, the streets of downtown Reykjavik were still filled with that familiar sound.


SIGUR ROS: (Singing in foreign language).

GARCIA: Thanks to Alexi for this two-part series on the Icelandic economy. These episodes of THE INDICATOR were produced by Darius Rafieyan, fact-checked by Nadia Lewis and edited by Paddy Hirsch. THE INDICATOR is a production of NPR.

Copyright © 2019 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.