Chairman and President & CEO’s address

The year 2021 was a year of recovery. After having focused on preserving our infrastructure, knowledge and maintaining financial strength throughout the pandemic, we were in a strong position for an efficient ramp-up as soon as passenger demand started to increase. Using our flexibility to adapt to the situation at any given time, we went from serving only four destinations with 10 weekly departures from Iceland early in the year, to 200 departures a week to 34 destinations during the summer peak.

The first half of the year our operations were at a minimum with focus on ensuring the crucial connections between Iceland and the world. The turning point was in the second half of the year when we transported 85% of our passengers. In 2021, we more than doubled the number of passengers between years to around 1.5 million. At the end of the year, we had reached 65% of our 2019 capacity in our international route network and reached pre-Covid levels in our domestic operation. Our cargo services continued to return good results in 2021, with volumes and revenue exceeding pre-Covid levels. Although our leasing operation was challenging during the year, we seized new opportunities that contributed greatly to the Company’s revenue generation. In line with increased production, we recruited almost 1,000 employees during the year, bringing the number of full-time employees to nearly 2,400 at year-end.

At the same time as we ramped up our services, we took strategic actions to streamline and simplify our operations and further strengthen our focus on our core business, aviation. This included the integration of Air Iceland Connect, our domestic flight operation, into Icelandair, the sale of Iceland Travel and Icelandair Hotels.

In all our activities during the year we have remained true to our core values – passion, simplicity and responsibility – working towards our vision of bringing the spirit of Iceland to the world, from our hub and home. To place even stronger emphasis on alignment between our strategy and actions, we made changes to our organizational structure and strengthened our team with special focus on digital transformation and customer experience.

Our clear goals and focused strategy resulted in a strong recovery and robust financial position at the end of the year. Following a successful ramp-up, results significantly improved in the second half of the year, turning an operating profit in the third quarter and delivering the strongest fourth quarter results since 2016. Assets amounted to USD 1,172 million at year-end 2021, net financial liabilities were USD 233 million, total liquidity was USD 435 million, and equity amounted to USD 222 million with an equity ratio of 19%.

Iceland is dependent on efficient flight connections for travel, export, import, international relations, and to maintaining a good quality of life. As the leading airline in Iceland and an important employer, a successful ramp-up of our operations has been crucial for Icelandic tourism, the economy and society at large. Due to the drastic impact of Covid, the Icelandic government introduced general measures to soften the impact of the pandemic. As many other companies Icelandair benefitted from these measures in 2020 and 2021.

However, the total tax footprint of Icelandair in the years 2020 and 2021 amounted to around USD 200 million, which is five times the measures received. That includes all taxes and fees paid to the government and municipalities, net of the measures received.

Additionally, the indirect impact of Icelandair’s operations is considerable. We transported around 350 thousand tourists to Iceland during 2021 that spent around USD 650 million on products and services within Iceland. Icelandair also plays an important role in the Icelandic seafood industry by securing transport of fresh products to key markets in Europe and North America. The export value of Icelandic seafood that we transported in 2021 was around USD 460 million.

Having a positive impact on the Icelandic economy and society is one of our four focus areas when it comes to sustainability. Icelandair is committed to the continued support of the United Nations‘ Global Compact and the UN Sustainable Development Goals (SDGs). We have chosen four of the SDGs that represent our strategic focus areas. In addition to contribution to the economy, they are climate and environmental impact, responsible procurement, and gender equality and diversity. These are areas where we believe we can have the most impact and create the most shared value – for the Company, our stakeholders and society at large. Other topics that we consider material for Icelandair and our stakeholders are for example, health and safety of our passengers, employee well-being and development, business ethics and governance.

We are committed to achieving improved environmental performance and have set clear goals in this area throughout the years, taking measures to reduce carbon emissions from our operations through fleet renewal, operational efficiencies and carbon offsetting. We also engage in international partnerships to work towards more sustainable aviation. Furthermore, we are currently exploring opportunities of adopting hydrogen and electric aviation technology for our domestic operations. We set ambitious new goals of reducing our carbon emissions by 50% per operational ton kilometer by 2030, compared to 2019. In line with the airline industry, we have committed to reaching net-zero emissions by 2050. Achieving these goals will require continued efforts through a combination of measures, such as fleet renewal, operational improvements, the implementation of sustainable aviation fuels and carbon offsetting. The implementation of the Boeing 737 MAX aircraft into our fleet is an important contributor to reducing our emissions, in addition to the operational efficiencies that they bring to our business.

We conducted an extensive review of our long-term fleet strategy during the year. The results of this work demonstrated that our current fleet composition is well suited for our route network in the short term. In the next few years, we will focus on ensuring our fleet’s continued growth and renewal with current aircraft types. The Boeing 737 MAX opens opportunities to introduce new destinations and increase the frequency to current destinations, and with its lower direct operating costs improves the feasibility of flying more flights outside the summer season. At the same time, the review provided a clear guidance on the development of the Company’s fleet over the next decade. That is, in the second half of this decade, we will be considering another type of larger aircraft to replace the B757s. This provides us with several options, both for larger narrow-body aircraft and wide-body aircraft. The development of the future fleet will therefore, to some extent, be determined by the agreements that we will reach with different aircraft providers. Follow-up steps in this extensive project have already been initiated.

Although the pandemic continued to impact our operations at the beginning of the year, we have started to see a positive turnaround in booking development for the months ahead. There is significant pent-up demand in all key markets, not least from tourists wishing to experience Iceland’s nature, culture and hospitality. Our flight schedule for 2022 is expected to bring capacity to around 80% of 2019 levels. Alongside further ramp-up, we will continue to retain our flexibility to meet any potential developments with regards to the pandemic and other external factors.

We will offer flights to 50 destinations during the year – 16 in North America, 27 in Europe, three within Iceland and four in Greenland. Thereof, four destinations are new: Raleigh-Durham in the US along with Rome, Nice and Salzburg in Europe. Furthermore, after solely being operated as a charter destination, Alicante is a new addition to Icelandair’s route network.

The outlook in international freight markets is strong. Demand continues to be robust for export and import growth is strong. The transit market was the fastest growing market in 2021, and we see great opportunities to increase capacity across the Atlantic and strengthen Iceland as a hub for cargo between Europe and North America. We are strengthening our cargo fleet to seize these opportunities and will add two B767-300 freighters to our fleet later this year. The outlook in the global market for ad-hoc and long-term charters has improved. In addition to the ongoing long-term leasing projects, we have secured various new short-term projects that contribute to better aircraft utilization and generate important revenue for the Company.

The outlook for VITA, our outbound tour operator, is good. In line with our strategy to streamline and simplify our operations while constantly improving our service offering, we are currently creating more synergies between the services provided by VITA and Icelandair’s package travel and holiday service. This work will continue into 2022.

Icelandair benefits from having the backing of a broad shareholder base, with 15,287 shareholders at the end of 2021. A new shareholder, Bain Capital, joined our group of shareholders during the year and subsequently changes were made to our Board of Directors. We welcome Bain Capital and are pleased to have a leading global investor with deep industry knowledge share our vision and belief in Icelandair´s long-term success.

With a clear strategy, a robust financial position and an outstanding team of employees, we believe that the Company is in a strong position to take advantage of market opportunities and reach our primary post-pandemic objective to return to sustainable operating results.

We want to thank our employees for their sheer dedication and hard work, our shareholders for their continued support and last but not least, our customers for their trust throughout challenging times and their encouragement as we step into a brighter future.