About Iceland’s High Cost of Travel

A few months back, I was originally scheduled to spend two weeks with Brian on Hawaii’s Big Island. With domestic travel on the upswing in the spring and much of the international traveling still off-limit, Hawaii has been the favored vacationing destination for Americans. So, with everyone flocking there, prices were going through the roof. For instance, a night at the Hilton Waikoloa Village costs upward of $600 for a standard room. The cost of our Hawaii trip was so out of control that I started to look around to see where else we could spend my precious vacation days.

So when I read that Iceland has opened for vaccinated Americans, I jumped on the chance to change my trip from a tropical volcanic island to a volcanic island in the arctic. Of course, it was ironic that I swapped one expensive island to another. The cost of living in Iceland is legendary, and the more I research, the more intrigued I am about whether Iceland’s reputation as an expensive destination holds up.

Airfare

If anything is underpriced in Iceland, it has to be the flight into the Keflavík Airport. Conveniently located in the middle of the North Atlantic, Iceland establishes itself as an ideal stop-over point between North America and Europe. Iceland Air, the country’s flag carrier, has transformed itself from a low-cost carrier to a major player in trans-Atlantic aviation. Before the arrival of the low-haul operation of the Norwegian Air Shuttle, Iceland Air often has the cheapest airfare to Europe, sometimes a couple hundred less than that of other European airlines. But unlike low-cost carriers like Norwegian or now-defunct WOW Air, Iceland Air did not resort to outsourcing its labor force to Asia-based flight crew. So it was all the more amazing that they could have a thriving business despite Iceland's high cost structure.

Iceland Air’s stopover program is a popular way to see Iceland.

For our trip, we could reserve a roundtrip ticket with Iceland Air for about $350 from New York, which is remarkable for the summer high season, even during the pandemic. Before the pandemic, ticket prices between New York and Reykjavík rarely exceeded $500 USD. A major appeal of Iceland Air is its popular stopover program, which allows travelers to stay in Iceland for up to 7 days on the way to or from Europe without additional fees. The program has been enthusiastically embraced and promoted by the Icelandic Tourist Board, and it is perhaps the smartest market campaign the country could develop. Many attribute the stopover initiative to the exponential growth of Iceland’s international arrivals.

Accommodations

With the meteoric of tourism in Iceland, there is a general shortage of accommodation across much of the country. Because tourism in Iceland is highly seasonal, securing accommodation in some parts of the country is particularly challenging during the high season. This is particularly the case in the southeastern corners of the country, where it is sparsely populated. All the guidebooks would tell you you must reserve all accommodations along the Ring Road as soon as you book your flight. Outside of Reykjavík and the area surrounding Keflavík Airport, international chain hotels are pretty much non-existent in Iceland. For those who enjoy chain hotels' modern comfort and predictability, local chains Fosshotels and Iceland Air Hotels have quite a few properties catering to discerning tourists.

Because our visit coincided with the ongoing COVID-19 pandemic, our accommodation cost may be significantly lower than it would have been in previous years. But we can stay at quality hotels at around $135 USD on average for what it is worth. Before COVID, almost all hotel rooms for the summer months were booked solid months in advance, and a basic room could cost as much as $200-300 USD a night. Those who didn’t plan ahead would likely resort to glamping… willingly or not.

Icelandic hotels tend to be rather basic compared to other European nations. While small, these rooms are usually functional and decorated in the muted Scandivanian color. The small size of the rooms is usually compensated by a stylish and generously sized public lounge. Almost all rooms are equipped with blackout shades to help shield the midnight sun. The best aspect of the Icelandic hotel is the excellent water pressure. No matter where we stayed, the shower was always welcoming respite after a full of outdoor activities.

More than any other country I could think of, Iceland is a great destination for short-term rental services like Airbnb and Vrbo. To meet the soaring demands from tourists, entrepreneurial Icelanders have worked hard to convert their spare bedrooms. Many farmers and ranchers have set up cabins ranging from rustic huts to luxury glass chalets for northern light viewing. We were fortunate to stay with our host, Nanna Viktoría, in the remote town of Hólar. It was a wonderful experience to connect with the locals and have a meaningful cultural exchange. Our time with Nanna ended up being a definite highlight of our trip.

Rental Car & Gas

Unless you are only staying in Reykjavík and visiting Blue Lagoon, you might want to rent a car for your Icelandic visit. Even though Iceland has a surprisingly decent public transit network, given its small population, getting around by bus outside Reykjavík could be time-consuming and cumbersome. The most frequently asked question is whether renting a four-wheel-drive (4WD) vehicle is necessary. The answer is surprisingly simple: you would need a 4WD if you plan a trip outside of Reykjavík outside of summer or drive on the highland road (also known as the “F Road”) any time of the year. Since we were sticking with the Ring Road in July, our small Suzuki Baleno is more than sufficient.

Our dependable if not perfect Suzuki Baleno.

Because of our advanced reservation, we paid roughly $900 at Alamo for a compact automatic car. It is quite a decent deal, considering it was the beginning of Iceland’s high season. For a 4WD vehicle with an international rental agency, it will run you about twice as much as a compact car. For that price, it makes sense to consider a compact camper van with comfortable sleeping space to help cut the accommodation cost. Our friends Vince and Ivy rented their camper van with KuKu Campers and could not recommend them more highly.

A major topic of conversation concerning rental cars is the matter of insurance. More than any country we have been to, Iceland seems to have a long list of natural hazards that could destroy your rental car. Besides the typical collision damage waiver (CDW) coverage you typically encounter, the rental cars are eager to sell you additional coverage ranging from auto theft insurance and gravel damage insurance to sand and ash insurance. It could honestly feel dizzying reading all the different options. The best thing we could recommend is to pick a good credit card and cross your fingers that your coverage will be sufficient.

Not surprisingly, the cost of gas is considerably higher than what we are used to in the United States. Based on the time of the visit, it runs about $7.50 a gallon, which is roughly two and a half times the price back home. Considering the high price of petroleum. We were surprised that our average daily fuel cost is around 5,000 ISK ($40) daily. Fortunately, gas prices are fairly standardized throughout the country. Except for sole Costco Gas near Reykjavík, there is little need to hunt for bargain gasoline.

Orkan is our gas station of choice in Iceland.

Speaking of gas stations, our favorite among the half-a-dozen brands is Orkan. They are easily recognizable with characteristic pink logos and the English slogan: “The Cheap Gas of Iceland.” But the cheerful branding aside, we prefer Orkan because of their compatibility with mobile payment at their pumps. Though it may not seem like a big deal for Europeans, the United States has not fully adopted the chip-and-pin credit card. Unless you specifically requested to your bank, our credit cards do not come with a four-digit PIN code, which makes getting gas at Iceland’s unattended gas pumps virtually impossible after business hours. Fortunately, we Americans can bypass this inconvenience at Orkan!

Alcohol & Drinks

Unlike its Nordic cousins, Iceland places high taxes on the vice of society, alcohol, and tobacco and has an interesting history with its alcohol. Like the United States, Iceland had a strong temperance movement in the early 20th century that led to the wholesale prohibition of all alcohol in 1915. However, due to a trade dispute with Spain, Iceland begrudgingly loosened the prohibition. Ironically, however, the prohibition of beer lasted until 1989. Fair or not, the Icelanders saw beer as a bigger threat to society, especially for young people. Walking around Reykjavík and just about every other town, Iceland has a thriving microbrew industry. Sure enough, beer seems to be the drink of choice for most.

State-run monopoly Vínbúðin in Seydisfjordur.

In Iceland, all retail sales of alcohol are monopolized by Vínbúðin, the state alcohol monopoly company. With more than 50 locations across the country, alcohol is surprisingly accessible even in small towns, but they do close on Sundays. And if you cannot make it to Vínbúðin, alcohol is widely available at various bars and restaurants. Because Iceland’s alcohol tax is tabulated based on the percentage of alcohol content in the beverage rather than the list price of the bottle, the price difference between low-quality and high-end wine is not as dramatic as in other countries. So, just how expensive is alcohol in Iceland?

To illustrate my points, I would like to compare the average cocktail cost at a representative upmarket restaurant in Reykjavík (Grillmarkaðurinn) and New York (Gramercy Tavern). At 3,000 ISK (or $24.25), a typical cocktail in Reykjavík seems outrageous compared to the $19 list price in New York. But because this is America, taxes and gratuities are not included in the list price. So, a cocktail in New York incurs an 8.875 % sale tax and an additional 20% gratuity. Before you know it, the sample American cocktail's actual price is approximately $24.75. So, it is quite amusing that I have never heard people complaining about the high alcohol prices in New York City.

Stocking up on alcohol at the duty-free store.

Sign for the maximum allowable “alcohol unit” that each passenger is allowed to bring into Iceland.

To avoid the exuberant tax on alcohol, most Islanders took advantage of the duty-free store next to the baggage claim of Keflavík Airport. According to others, Keflavík is one of the few airports with a duty-free store on arrival. Those in the know made the beeline there to pick up the cheapest alcohol in the country. At the duty-free, the average red line bottle costs between $12 to $20, with boxed wine costing as little as $40 for a 3L box. It may not be as cheap as wines from Trader Joe’s, but it is pretty darn affordable in my book.

If you want to take advantage of the duty-free offering, plenty of signage reminds you of the maximum alcohol units allowable by Icelandic customs. As Brian picked out the wine for the trip, we saw almost every crew member from our flight stop in to grab a few bottles. Easy access to tax-free booze is a major perk of working for Iceland Air.

Food & Snacks

It is well known that Iceland doesn’t have the best reputation when it comes to food. Renowned for their traditional “hardship food,” such as fermented Greenland shark (Hákarl) and boiled sheep head (Svið), today’s Iceland’s culinary landscape is anything but uninspiring. We were quite surprised by how much we enjoyed Iceland’s food offerings. There is no shortage of eateries serving contemporary Icelandic fare outside the cosmopolitan capital. But the bad news was that eating out in Iceland is not cheap. With an appetizer running about 2,000 ISK and 3,500 ISK for an entree, a decent restaurant meal could seriously damage your wallet.

Bæjarins Beztu Pylsur in downtown Reykjavík.

Iceland’s reputation as an expensive destination is largely due to the lack of affordable meal options. The cheapest eats around Reykjavík is the Icelandic hot dog, pylsur. A typical hot dog at roadside shacks will cost you anywhere between 450 to 550 ISK, which makes it twice as expensive as a typical hot dog back in New York. Iceland’s international fast food options do not fare much better either. Because of its geographic isolation and high labor cost, ubiquitous American chains like McDonald’s, Burger King, and Starbucks have not arrived (or survived in the case of McDonald’s) in the country. The only chains we encountered were Subway, KFC, and Domino's Pizza. Even there, a fast food meal could run you at least 1,600 ISK a person.

A feast of langoustine at Fjöruborðið is easily the most expensive meal we had in Iceland.

The best budget tip for eating out is to take advantage of the various buffet options around the country. Aside from the breakfast buffet at most hotels, many restaurants offer simple soup and salad tables. For less than 3,000 ISK, you could enjoy as much soup, bread, and Icelandic butter as you wish. Of course, packing your own sandwich or cooking your own meal is still the cheapest option. However, supermarkets in Iceland tend to have relatively short business hours. So make sure to get your shopping in time before dinner time. But even for grocery shopping, one should still prepare to spend extra krona on fresh produce and meat in Iceland. For the best deal, the Bonus supermarket would be your best bet.

While the general cost of food is sky-high, meals at top-end restaurants are surprisingly reasonably priced. For instance, I was surprised to learn that the tasting menu at Dill Restaurant, the only Michelin-star restaurant in Iceland, costs as little as 13,900 ISK. It may seem expensive, but considering that you could easily spend 9,000 ISK at a mediocre restaurant, we find Iceland a decent place to splurge on amazing restaurants. What is often not mentioned is the general food quality in Iceland. From the SS hot dogs from the supermarket to a random hotel restaurant, we were genuinely amazed by the freshness of the produce and the overall respect for ingredients.

Chocolate and connoisseur ice cream at Valdi’s in Reykjavík.

Of course, indulging in local sweets is a great joy for any Icelandic. It only took a visit to the local supermarket to comprehend Icelanders’ obsessions with sweets. In particular, they are particularly fond of everything licorice; it seems like a whole aisle is dedicated to everything. As a licorice connoisseur, I am happy to report that the selection is always excellent and remarkably affordable. You could pick up a giant bag of these black candies for as little as 300 ISK!

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