Iceland introduces dynamic tourist fee

23-06-24

Iceland seeks to regulate the influx of tourists in high season with a variable tourist tax, adjusting the price according to demand.

Nothing has slowed tourism in Iceland in recent years. Neither the pandemic nor frequent volcanic eruptions have deterred visitors. In 2023, the country welcomed around 2.2 million tourists, almost six times its population, generating 598 billion Icelandic krónur in export revenue (about €4 billion). This represents almost a third of total annual exports, according to the Bank of Iceland, and tourism constituted 8.5% of GDP.

Despite the economic benefits, tourist overcrowding is a challenge. As a result, Iceland already charges a nominal fee of 600 krona (about €4) from hotel guests to fund sustainability programs. However, Prime Minister Bjarni Benediktsson has indicated on CNBC that they could switch to a system where those who use tourism resources the most pay the most.

Benediktsson suggests a dynamic pricing model: "By doing this, we could control traffic. At the peak of demand, we would set a higher tax, which we could adjust daily, monthly or at specific times of the year." This approach is already used in Venice, where the hotel tax varies between €1 and €5 depending on the season, and a €5 entrance fee has been introduced during periods of high demand.

Although some criticize these fees as exploitative of tourists, proponents argue that they provide an incentive to visit at less crowded times, promoting more sustainable tourism.

The concept of dynamic pricing is not new to the travel industry, having been applied to airline tickets, hotels and transportation services. Now, it is also being used in restaurants, tours and even British pubs. Airlines, for example, have begun to apply dynamic pricing to checked baggage fees, as is the case with JetBlue.