IACC NYC March 7th 2009Birkir Holm GudnasonCEO Icelandair

Agenda

+ Icelandair Group+ Icelandair+ Industry Trends+ External Environment+ Future prospects

ICELANDAIR GROUP

Icelandair Group Companies

Group Dynamics

IcelandairHotels

Icelandair IGS IcelandairCargo

AirIceland

LoftleidirIcelandic

Icelease TravelService

BluebirdCargo

SmartLynxIcelandTravel

Q4 - 51,5% Q4 - 48,5%2008 - 43,5%2008 - 56,5%

REVENUE DISTRIBUTION Q4/2008 BY SEGMENTS AND COMPANIES

Icelandair Group 2008 Revenue

North America10%

South America2%

Iceland20%

UK4%

Scandinavia9%

West Cont.Europe17%

CentralEurope28%

Africa3%

Asia4%

Oceana2%

The Fleet – total 69 aircrafts

9 Boeing 757-200

1 Boeing 757-300

5 Boeing 757-200 6 Fokker Friendship

2 Dash 8

2 Boeing 737-500

10 Boeing 737-800

1 Sovereign

4 Boeing 737-300

2 Boeing 737-400

7 Boeing 757-200

2 Boeing 767-300

3 Boeing 757-200

3 Boeing 737-500

2 Boeing 767-300

7 Airbus A320-200

ICELANDAIR

1937Commercial flightscommence.Flugfélag Akureyrarfounded. The namewas later changed toFlugfélag Íslands.

1945First internationalflights. FlugfélagÍslands started flyingto Scotland andDenmark. Loftleiðirbegan internationalflights in 1947.

1952Loftleiðir startsinternational schedulebetween USA andLuxemburg with astop in Iceland. Lowfares make thecompany known asthe hippie airline.

1969Air Bahamasacquired. Acompetitor in theNorth-Atlantic marketbought andincorporated.

1973–1981Name changed toFlugleiðir after themerger of Loftleiðirand FlugfélagÍslands. Record oilprices, inflation,DC10 accident, jobcuts and costsavings.

1981–1987Years of totalutilization. Thecompany used up allexisting resources,gained high loadfactors, offered lowfares.

1988–1995Total renewal of allequipment - newBoeing aircraft.Focus on travelservices. Billionsinvested in aircraft,hotels, car rental andmaintenance centre.

1995–2001Expansion of theroute network (10-15% annually).Number of touristsvisiting Icelanddoubled in a 10 yearperiod.

2002The operations were downscaled after 9/11. Better results,growth and renewal.2003Flugleiðir becomes a holding company – Icelandair and severalother companies formed as subsidiaries2004New ownership and more focus on investment activity2005Flugleiðir becomes investment company FL Group, andIcelandair Group formed as its “Iceland” aviation part2006Icelandair Group sold to new owners and listed on the NASDAQOMX Iceland2007-8Growth in charter and leasing activity, change of management,job cuts and cost savings

1930 1940 19601950 1970 1980

History of flexibility and adaptability

1990 2000

+ 1.300 Employees+ Turnover of 50 billion ISK+ 162 flights per week to 25 destinations+ 1,6 million passengers in 2008+ 12 Boeing 757 aircrafts in operation

Organizational Structure

Birkir Holm GuðnasonCEO

Hlynur ElíssonSVP

Finance & Administration

Helgi Már BjörvinssonSVP

Sales & Marketing

Ástþór IngasonDir. Ground Operation

Andri Áss GrétarssonSVP

Operation

Jens BjarnasonVP Technical Services

Hilmar BaldurssonVP Flight Op. &Training

Svali BjörgvinssonVP

HR & Strategy

Schedule & NetworkManagement

InformationTechnology

Pricing & RevenueManagement

Distribution & DistributionCost

Marketing & BusinessDevelopment

Gudjon ArngrimssonCorporate

Communication

SalesRegions

Dynamic and Flexible Marketing and Sales

EUROPE

Columbia, Maryland

Germany & Benelux

UK & Ireland

France & Southern Europe

GSAs

Scandinavia

USA

Copenhagen

Stockholm

Oslo

Frankfurt

London (LHR)

Manchester

Glasgow

Paris (CDG)

Madrid / summer

Helsinki / summer

Milan / summer

Amsterdam

Berlin / summer

Sales office - REK

ICELAND

Dusseldorf / summer

Munchen / summer

Barcelona / summer

New York

Minneapolis

Orlando

Toronto

Boston

Halifax

Icelandair Head Office

Sales office – KEF Airport

+ Icelandair has a vast experience and knowledgeof international consumer markets

+ 80% of the business comes from foreign markets,which is unique among airlines – 25 destinations

+ We have sales offices in 10 countries

+ Great focus on PR to expand the marketingexposure

Seattle

Bergen

Stavanger

Icelandair Business Idea and Network Strategy

Iceland’s geographical location on the shortest flight route across the North Atlantic enables Icelandair toservice three main markets, and carry 1.6 million passengers annually:

TO The tourist and business market to Iceland – 45%

FROMThe home market in Iceland – 20%

VIA The market between Europe and USA – 35%

The via market makes is possible forIcelandair to offer the to and from marketsmuch better schedule than they couldjustify on their own

Seattle

Orlando New York Boston Halifax

Paris

LondonAmsterdam

Frankfurt

CopenhagenOslo

Stockholm

Helsinki

Minneapolis

Toronto

Our competitive advantageThe Route Network strategy is based on 24 hour rotation, where the aircraft has to be able to make one trip toEurope and one trip to USA within the 24 hour rotation cicle

High utilisation of Aircrafts (efficiency)Single type aircraft fleet (Boeing 757)Short turnaround times (50-80 minutes)

Three Markets (TO – FROM – VIA)

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Y 2 0 0 0 Y 2 0 0 1 Y 2 0 0 2 Y 2 0 0 3 Y 2 0 0 4 Y 2 0 0 5 Y 2 0 0 6 Y 2 0 0 7 Y 2 0 0 8 Y 2 0 0 9

F e rð i r frá Ís la n d i

F e rð i r t i l Ís la n d s

T e n g i fa rþ e g a r

+ The route networks gives us the flexibility of changing focus relatively quickly to adjust to change indemand

+ In 1999 we had 50% of our passangers going Trans Atlantic (VIA)+ We expect growth in Tourism to Iceland in coming years

Seattle from July 22

+ Location of Iceland between North America and Europe gives us competitive advantage for travelbetween Seattle and Scandinavia

Cooperation with Alaska Airlines

Icelandair Business Idea

+ Icelandair "punches above its weight" because it has leveraged its tinymarket into a global operation, says Ulrich Schulte-Strathaus, secretarygeneral of the Association of European Airlines in Brussels. He saysIcelandair is "a benchmark for older carriers ... because it has been able toserve its niche market consistently well over so many years.“ (Wall StreetJournal news story on Icelandair, October 2008)

+ The country enjoys a niche in transatlantic flights through Reykjavik and anassociated tourist trade. (Financial Times Editorial on the Prospects ofIceland, February 2009)

Importance of the Route Network

NORTH AMERICA:+ There are 14 flights from Stockholm to

USA (NYC, Chicago)+ There are 6 flights from Oslo to USA (NY)+ There are 17 flights from Iceland to

USA+ Without this network, all of our VIA

passengers, plus 70% of our TOpassengers and 50% of our FROMpassengers would dissappear because ofless frequency

+ We assume we would have 2-4 flights aweek to USA if we would operate withoutthe hub-and-spoke network

+ There is a great difference between 17flights a week and only 2-4 flights a week

EUROPE:+ There are 48 flights a week to Europe

with Icelandair+ Only 13 of them do not connect to the

US departures+ We assume at least 20 of those flights

would dissapear if there was noconnection to USA.

+ Our capacity would probably be only50% of what we have today without thenetwork.

+ In the Icelandair network we carry 1.6million passengers, serving a homemarket of little more than 300.000

In a typical week in winter 2008/2009:

TOURISM DEVELOPMENTAND INDUSTRY TRENDS

The Industry Challanges

Drive load factorswithout compromising

price

Accurately forecastmarket demand

Keep up with competitoronline developments and

spend

Respond to low costcarrier growth

Drive more traffic tobrand sites (and callcenters)

Sell more complexinventory online

Build out the routenetwork and differentiate

the product

Increase marketingefficiency and drive out

cost

Build stronger relationshipsand engender customer

loyalty

Grow marginlevels

1999 2000 2001 2002 2003 2004 2005 2006 2007

Pax

1999 2000 2001 2002 2003 2004 2005 2006 2007

Gestir

Growth of travellers to Iceland are in line with Icelandair’s passengers growth

Strong route network and high frequency is main reason for 10% annual growth to Icelandin past 10 years

Tourism to Iceland and Icelandair passenger numbers

Total passenger numbers have tripled in the last 15 years

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

´91 ´92 ´93 ´94 ´95 ´96 ´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08

Visitors to Iceland have also tripled in the last 15 years*

*ITB immigration figures

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

400.000

8́5 8́6 8́7 8́8 8́9 9́0 ´91 9́2 9́3 9́4 ´95 9́6 9́7 9́8 9́9 0́0 0́1 0́2 0́3 0́4 0́5 ´06 ´08´07

450.000

+ After the slow recovery from 9/11 and the initial Iraq invasion, U.S. traffic to Europe finally set a new recordof 13.33 million visits in 2007.

+ Traffic was in decline through 2008, at first because of weak dollar (touching lowest ever vs. euro in July) andrelatively high fares (fuel prices), then because of financial meltdown in second half. 2008 final estimated at12.49 million visits, or - 6.3 percent. That’s not so bad.

+ Through the 1st Q, overall trans-Atlantic travel (both directions) is not down as much domestic U.S. and inter-Europe. But business and premium-class is down more than leisure. This creates opportunities for carrierlike Icelandair

+ If economy appears to be touching bottom in 2nd Q then losses in leisure might not be so bad thissummer compared to last year (partly because the decline began last summer). This assumes that dollarstays relatively strong.

+ Deals are moving the market and there is a late booking trend. People expect deals.

+ Capacity for North Atlantic travel is expected to go down in 2009 because of less demand

+ Iceland’s image, we believe, is well-established with growing market segments like adventure groups andother niche market segments, who may be encouraged by new lower prices to make return trips. ButIceland’s numbers have been high because of the large number of general leisure travelers that have beenattracted. Again, the new, lower prices and proximity should make it possible to draw many of their peerswho have yet to make their first trip.

+ And, of course, Icelandair always offers that 2-for-1 idea with a Stop Over in Iceland: Iceland, plusanother destination in Europe for a great price.

Trends : US Travel to Europe

Distribution Channels Development

+ We get less and less chance to meet and talk with our customers, therefore those

points where we have direct contact gets more important and valuable.

00

100.000

200.000

300.000

400.000

500.000

600.000

2000 2001 2002 2003 2004 2005 2006 2007

Consolidators

Internet agents

Travel agents

Tour operators

Telephone sales

Internet sales

EXTERNAL ENVIRONMENT

Overnight market collapse

+ Icelandair was doing reasonably well in 2008+ FROM Iceland market was decreasing but capacity had been adjusted to the demand+ Autumn 2008

• ISK was devaluating slowly• Oil going down• Capacity cuts made up for the declining local market• Until end of sep 2008...

Actions in 2008

+ We took drastic actions in May/June 2008 and October again as we expected tough winter – we were one of the firstairlines to cut capacity and cost for the winter

+ New executive board and trimmed management. Consolidation of departments, 4 SVP´s instead of 7 before, 8 directorsinstead of 15 - streamlined and more efficient organization to make the structure leaner and quicker decision process.

+ Improvement projects to cut cost in all departments - Focus on fuel conservation.

+ Major cutbacks owing to fuel prices and economic crisis. Management lead extremely difficult measures to lower costlast summer as a result of the economic conditions and operating environment. Capacity was cut by 20-25% % from thepreceding year – 280 flights taken out.

+ Layoffs of staff. The cutbacks meant that 350 staff lost their jobs in one of the most extensive staff cuts in the Company’shistory.

+ Swift reaction following the collapse in Iceland after the banking crisis. One of the consequences was that the peopleof Iceland, our home market, extensively cut back on their travels abroad. Icelandair’s sales and marketing staff swiftlychanged focus and managed to significantly increase sales in international markets.Moved all marketing funds and salesfocus away from the FROM market over to the TO and VIA markets.

+ Pricing and Revenue management focus to maximize revenues on TO and VIA markets with the aim to make up forthe lost FROM market sales.

+ Made use of all of the attention Iceland was getting in foreign media to highlight our product and the fact that visitingIceland had become much more affordable.

+ We sent crisis team to all our foreign markets to tackle negative PR and respond to false media statements

Results so far...

+ Managed to reach revenue goals in October, November and December in spite of the home marketcollapse - However faced a serious cost increase due to devaluation of the ISK

+ January, February, March show good bottom line outcome and spring and summer show positiveindications.

+ We expect to increase the number of tourists TO Iceland by 15-20% in 2009.+ We are therefore relatively pleased with the results from a very difficult situation

2,5

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7,5

Janúa

r

Febrú

arMar

sApr

ílMaí

Júní Jú

lí

Ágúst

Septe

mber

Októb

er

Nóvem

ber

Desem

ber

Month

RA

SK

2005200620072008Bud

• Revenue per ASK on fixed exchange rate are up compared to last year and above budget

Future of the FROM market

+ For a number of years we had observed a very strong trend of Private ConsumptionGrowth (PCG) and Icelandair sales out of Iceland

+ The general knowledge that travel overshoots PCG seems to be true in our FROMmarket

+ Without much else to rely on in the uncertainty last autumn, we waited for PCG forecastfrom the Central Bank and simply took capacity actions 100% accordingly

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Y1996 Y1997 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011

Private consumption growth

FI From PAX growth

Low cost competition starts

Icelandic bubble

Icelandic crash

FUTURE PROSPECTS

Outlook

+ Focus on profitable growth and sustainability of the Icelandair network which is our main competitive advantage

+ Renovation of fleet with new interiors. An extensive undertaking is in its final stages. It is safe to say that the

appearance of the Boeing 757 fleet has been transformed with new seats and entertainment systems.

+ New look, new image of Icelandair's services. At the same time Icelandair has changed its service concept, launched a

new class, Economy Comfort, and made various other changes, such as food services, sale on board, uniforms etc.

+ Differenciating the Icelandair brand from its global competitors

+ Strong focus on inventory & revenue control to improve unit revenues

+ Great focus on capacity control and profitability – quickly adjust to changes in demand

+ Less demand in the FROM market gives us opportunities in VIA and TO markets where we expect to increase

passangers in coming months and years

+ New Operation to Seattle from July 22nd 2009. Full year operation, 4-5 x a week. Icelandair will have the best elapse

time between Seattle and Scandinavia. It is a great addition to our network that will support the frequency of our European

gateways. Biggest share of passangers will be trans atlantic (VIA) and TO Iceland, we are expecting only 10% of

passengers FROM Iceland.

+ Tourism industry in Iceland is gaining from weak ISK – we are therefore expecting inrease in foreign tourists to Iceland

this year by 15-20%

+ We are optimistic for the months and years ahead. We see opportunities in growing our network and add new gateways

both in Europe and North America

Entertainment,A la carté,Efficient

WorkEnvironment,practical, Valuefor money

WorkEnvironment,practical, Valuefor money

New Middle CabinEconomy Comfort

+ New Seats and Entertainment system

Valuecreation

Time (years)Current operations

Medium term1-3 years

Long term3+ years

Strategy forthe next 12months

Strategy forthe next 1 - 3years

Strategy for thenext 3+ years

Consolidation

Efficiency

Customer Service

Adaptability

Corporate culture

New Service level

Streamline operation

Dual fleet

Market penetration

Working environment

Lean Management

New Markets

Fleet change

Icelandair 3-5 year strategy

THANK YOU

WHO? – WHAT? – HOW? – WHERE?

We offer different products to different market segments

At the same time we use different channels for different market segments

The same goes for media and marketing

Market Segments Target Group Product Channel

Saga ClassEconomy ComfortEconomy Class

Iceland & North America

Economy ClassEconomy Comfort

Iceland & North America

Economy ClassEconomy Comfort

Packages

Iceland & North America

Economy ClassEconomy Comfort

Customer Club

Iceland & North America

Visit Friends & FamilyIcelandic Ethnic Market

USA Ethnic MarketCanada Ethnic Market

FI InternetTravel AgenciesInternet Partners

FI Call Center

Leisure Travel

City Break (all age groups)Retired people 55+

Baby boomers 45-55Families

Young nature enthusiasts

Tour OperatorsTravel Agents

Internet PartnersFI Internet

Groups & MICE

CorporationsMeeting & incentive houses

Travel agents groupdepartments

Tour OperatorsTravel Agencies

Corporate Group Dep.FI Group Department

Business Travel

Companies doing businessbetw een our gatew ays, e.g.

Chamber of Commerce,Embassies

Corporate TravelAgenciesFI Internet

FI Call Center

Our Purpose

+ Its a common thought that airlines are only a method to go from A to B. That the service offered is the same everywhere

and that it doesn’t matter who you travel with

+ However, we do have airlines that have managed to differentiate by creating a different experience that is valued

among customers and wants to fly with them rather than others if possible. Examples of this are Southwest, Virgin Atlantic

and JetBlue.

+ We believe we can differentiate among airlines by putting emphasis on our positive origin, meaning nature, culture and

heritage.

+ We need to give our guests a reason to prefer Icelandair over the competition, by offering an experience they cannot get

elsewhere.

+ Increase the enjoyment and pride among our employees and therefore make Icelandair a exciting workplace

Firm infrastructure

Human resource management

Technology development

Procurement

Inboundlogistics

Opera-tions

Outboundlogistics

Marketingand sales

Service

Sup

port

More

Icelandair