High motorization rates
Iceland has one of the highest motorization rates in Europe, ranking in the top three alongside Liechtenstein and Luxembourg. As of 2020, ninety percent of passenger journeys in the country were made by car, and this has only continued to increase. The whole of Iceland is connected by one main road that encircles the entire island and links to a network of smaller roads. This coupled with a limited public transportation network are main contributing factors to the country’s high motorization.While the country has large, sparsely populated rural areas, Iceland is highly urbanized. Around 94 percent of the population lives in urban areas, predominantly in the capital city of Reykjavík. Significant population growth around Reykjavík over the past decades and resulting urban sprawl have had an impact on the number of journeys in the urban and suburban areas being made by car. However, Iceland does not have a rail network and, thus, relies on its bus network for public transportation, operated by the publicly owned company Strætó. The company runs the urban and suburban routes around Reykjavík, as well as long-distance routes connecting the capital region to other parts of Iceland.
Overall, Iceland's transportation and storage industry employed 9,500 people in 2021, accounting for approximately 4 percent of all employees in the country. This sector includes companies that operate transport infrastructure, passenger and cargo transportation services, and storage facilities. Some of the companies active in Iceland include airport operator Isavia, shipping companies such as Eimskip and Dutch operator Samskip, and passenger service providers such as Strætó and Icelandair.
Aviation: A key aspect of transportation in Iceland
Considering the country's comparatively small size, Iceland has established itself as a relatively significant trans-Atlantic aviation hub due to its central location between North America and Europe. Using Iceland as a stop-over allows airlines to shorten flight times and operate trans-Atlantic routes with smaller, narrow-body airplanes.The aviation sector is responsible for a large percentage of the country's transport industry turnover. The remote nature of many of Iceland's towns and cities outside the capital area makes domestic flights an integral part of Iceland's transportation system, with over 645,000 domestic passengers recorded at Icelandic airports in 2022. Out of the thirteen airports in Iceland with scheduled flights, the largest airports for domestic travel are in Reykjavík and Akureyri. However, Iceland's leading international passenger and cargo hub is Keflavík International Airport—home of Iceland's largest airline, Icelandair. In 2022, international air passengers in Iceland outnumbered domestic passengers at a rate of nearly ten to one.
In addition to Icelandair, 27 other airlines have flights to and from Keflavík. The Icelandic low-cost carrier WOW air was also based at Keflavík Airport until it ceased trading in 2019, significantly impacting passenger numbers at the airport. A new low-cost carrier, PLAY, established itself in Iceland in 2019 and operated its first flight in 2021, looking to fill the gap in the market lef by WOW air. Among the predominantly European and North American airlines flying to the country, United Airlines and Lufthansa operate the largest number of flights to and from Iceland.
