I try to be on top of news regarding new air routes, so this is how, a few months ago, I came across some eye-catching news: Atlantic Airways was to start flying to Barcelona from Vagar airport following the reception of their first Airbus A319 aircraft.

One of Atlantic Airways new A319s. Picture: curimedia, via Wikipedia

All normal, if not for the fact that Atlantic Airways is the flag carrier of the Faroe Islands, a tiny rocky archipelago in the middle of the North Atlantic populated by some 50,000 people. All right, I thought, even if it's a tiny market, Faroese people are surely great travelers, weren't they descended from vikings anyway?

But my curiosity for this small airline reached a new high when I learned that after getting this first A319 (and starting also regular service to Milan), a second and, then, a third A319 followed! How could the tiny Faroese market keep up with such a huge increase in capacity?

I got in touch with the people at Atlantic Airways, that very kindly explained to me their current development plans and how it all makes lots of sense...

Outgrowing its home market

Atlantic Airways was until now operating an Avro RJ85s and one RJ100 configured to carry 94 and 97 passengers respectively, on a route network that was limited to the usual regional destinations you would expect: Copenhaguen, Reykjavik, Bergen...

The arrival of the Airbuses, each configured for 144 passengers, changes the nature of the game though...where is the demand to fill this capacity coming from?

As it turns out, the first A319 routes were a big success, so this encouraged Atlantic Airways to carry on their expansion strategy. The Airbuses are, actually, not meant to serve only the Faroese market. To start with, Atlantic Airways has a long-term partnership with Danish tour-operator Atlantis Rejser, for the year-round provision of charter capacity to medium-range destinations, such as Sharm El Sheikh. This agreement alone mitigates considerably the risks associated with such capacity increase since it provides regular off-season load factors.

While "life-line" services to the Danish mainland and to neighbouring countries continue to be the core business of Atlantic Airways, the arrival of the second A319, on lease from Air Malta, in May 2013, and of the third aircraft (also leased), in September, fit into this diversification strategy: Atlantic Airways has for some years been successful in developing a revenue stream from charter business to complement its scheduled service income.

The higher payload, much lower seat cost and longer range of the A319, compared with the AVRO RJ type, greatly enhances Atlantic Airways possibilities in this market.

The other thing that flies in the Faroe Islands. Picture: Wikipedia

Moreover, not all three Airbuses are going to be permanently based in the Faroes: when the third aircraft arrives, Atlantic Airways will have just one A319 based there, with the other one being based in Copenhagen and Billund, in Jutland.

A short note about regulation here: actually, although the Faroe Islands are a self-governing territory within the Kingdom of Denmark and are not part of the EU, Atlantic Airways' aircraft are on the Danish civil aviation register and regulated by the Danish authorities.

While all three aircraft will be integrated into Faroe Islands schedules, routes to Copenhagen and Billund cater for the significant demand for travel between the islands and Denmark with the large Faroese diaspora representing a particularly important market, fewer than half of the seats sold on the Airbus fleet will, actually, be on Faroe Islands scheduled services.

An added benefit of having an Airbus fleet is that its much lower seat costs have enabled Atlantic Airways to get more creative in their fare structure, stimulating, this way, both the tourist and VFR traffic. This has happened in parallel to the Faroese government increasing its budget for tourism promotion. Because of this and also because Atlantic Airways has too been very active in promoting the destination to Danish and other audiences, they anticipate further growth in tourist numbers.

Fleet and network planning

The airline is also currently looking at how long the RJ type aircraft should be retained in the fleet: of the two aircraft that will remain in the fleet at September, one (the RJ 85) is fully depreciated and the remaining RJ 100 will be fully depreciated in a little over a year, however, these aircraft might be retained as a smaller alternative to the A319s. Although the seat costs are high, the RJs may remain suitable for the ad hoc charter market and to cover thinner schedules.

However Atlantic Airways' management is clear in that, if a good opportunity for cost-efficient disposal of the RJ fleet arises, they may look, instead, towards introducing another type into the fleet in order to serve short-haul routes not suitable for the capacity of the Airbuses.

As you might have guessed when I ask about potential new destinations for the A319s out of the Faroes, all points in the direction of the winter sun: a direct flight from Vagar to the Canary Islands might up in the schedules this coming winter season!

And what about the inbound tourism flow?

Although the Faroe Islands will never become (fortunately!) a mass tourism destination, it is becoming increasingly better known a and it was even named as the "World’s favourite unspoiled island destination" by a panel of travel experts not long ago.

This positioning has helped enormously in positioning the islands as the ideal destination for people who want to enjoy a simple holiday, close to nature and the most dramatic scenery, a message that enjoys resonance in many large outbound markets, such as Germany and the UK, and even further afield in countries like the US and Japan.

In addition to the work carried out by Visit Faroe Islands, Atlantic Airways also promotes its routes by marketing the Faroe Islands as a destination. The airline’s Together campaign, which promoted the Faroe Islands on TV and through other media, stands out because it received a top industry award in Denmark and has been successful in attracting additional tourist traffic.

When it comes to inbound traffic the one single event that would be a complete game-changer would be the discovery of exploitable oil reserves in Faroese waters, as this would surely stimulate oil-related business traffic, particularly to and from Norway and the UK.

The very special Vagar airport

Another particularity of the Faroese aviation industry is that its airport, Vagar, was built during WWII in a somehow "challenging" location. Although the runway at Vágar was also extended to 1,799 metres in 2012, Atlantic Airways has actually adapted its aircraft to the Faroe Islands operating environment. It had done this by retro-fitting of the RNP AR 0.1 satellite-based approach and take-off navigation system, that was developed by Atlantic Airways together with Airbus subsidiary, Quovadis.

The airline’s significant investment in RNP AR 0.1 was designed primarily to improve the regularity and reliability of its lifeline scheduled services (which have been operated without competition since the withdrawal of Maersk Air in 2004), as it ensures that Atlantic Airways' aircraft can operate safely to minima that are very significantly lower than those offered by the airport’s new ILS system. This might be able to give Atlantic Airways a competitive edge when it comes to reliability of schedules and help it remain unchallenged in its home market. According to the airline's representative own words, the system has been spectacularly successful, helping drive double-digit growth on the key Copenhagen route.

A North Atlantic hub?

At this point the comparison with the other North-Atlantic airline that has outgrown its home market, Icelandair, is inevitable...I ask whether is there any chance, given its central position between Iceland, Scotland, Norway and Denmark, of the Faroe Islands becoming a sort of regional hub, the reply is clear:

"We enjoy a good working relationship with Icelandair and so, although we have the capability to fly non-stop to the Eastern seaboard of the USA, our strategy at present is to think in terms of servicing any American demand via Iceland, in partnership with Icelandair. By the same token, we are keen to promote the concept of two-centre holidays with Iceland, but we don’t really see Vágar becoming a significant hub in its own right."

So, no stopovers on sight...but if it continues to carry on its growth plans, Atlantic Airways will soon leave you without an excuse to visit these beautiful islands anyway!

Atlantic Airways: the ambitious airline from the Faroes