Cold climate, warmer reception Welcome to ‘Halfpriceland’

At Keflavik International Airport, a big, red sign at the bottom of an escalator makes a U.S. tourist feel slightly defensive. It asks, “Are you here for the nature or the exchange rate?”

Ever since the country’s currency, the krona, went into free fall in autumn, American visitors can’t help making that calculation. In early January 2008, the krona weighed in at 63 to the dollar; today, it has nearly doubled. For U.S. vacationers, the famously exorbitant island of black lava, blue geysers and $10 bottles of Guinness suddenly seems more hospitable.

But is Iceland a bargain? Let’s just say its sky-high prices have fallen down to Earth, as I learned during a visit late last month.

Iceland became an attractive destination when the house of cards that constituted its banking system collapsed three months ago. Easy credit, rapid economic growth and broad deregulation of the country’s financial sector had spurred banks to expand abroad, despite heavy exposure to market risk.

When the global financial edifice toppled in 2008, Iceland was hit especially hard. In October, its three largest banks failed. For two days, trading on the country’s stock exchange was halted. And banking -- until the crisis, Iceland’s third-largest source of income, behind fishing and aluminum exports -- fell off the chart. It was replaced by, of all things, tourism.

Though Icelanders are surprised and aggrieved by the crisis, the tourist trade has jumped at the chance to tout the nation’s affordability.

It’s just another example of Icelanders’ resourcefulness; after all, this is a nation that, on treeless volcanic detritus, built geothermally heated greenhouses to grow bananas.

Ten days after the krona plummeted, Iceland’s tourist board, airlines and tour operators launched a coordinated campaign of low fares and airfare-hotel packages to lure Americans. Signs in the airport welcomed arrivals to “Halfpriceland.”

“Our message was: We’re still here, and our waterfalls are still running,” said Einar Gustavsson, head of the Icelandic Tourist Board in North America. “This immediately started to move people. It was a very pleasant surprise for Iceland, because we need foreign currency more than anything right now.”

Last year, 450,000 people visited the country, about the same as in 2007 -- impressive, considering that tourism in Europe markedly declined.

Before the crash, prices for Iceland’s domestic goods had run at least 20% more than comparable American products. Spending $100 in a restaurant for a bottle of middling California Merlot was not unheard of. Iceland’s double-digit interest and inflation rates had kept many items out of reach.

Today, many prices are on par with those in the U.S. -- at least, on the East or West coasts. At Reykjavik’s Cafe Paris, a breakfast croque-monsieur costs about $6; a lunchtime meal of goulash soup with Icelandic lamb and bread, about $13. Six Clementine oranges (wildly refreshing after days of Iceland’s bland and heavy traditional fare): a buck.

You can fill up your rental car for a little more than $4 a gallon. An adult entrance fee to the Blue Lagoon -- a steaming geothermal spa carved out of lava rock -- costs about $22; a 90-minute Swedish massage at the spa will set you back $100.

Rammagerdin, the Iceland gift store skirting the old city center, no longer leaves customers with sticker shock. A baseball cap decorated with puffins costs $7. Fur-lined leather gloves cost $40. And Icelandic wool sweaters, famed for their lightweight warmth, cost as little as $100.

Even in the luxury stores along Laugavegi, the capital’s main shopping drag, cotton sleep booties filled with down go for about $35, and red snakeskin boots cost about $250.

All of which means that travelers can afford to visit Iceland for the nature and the exchange rate. And they apparently are. Icelandair saw at least twice as many U.S. bookings for the fourth quarter of 2008, compared with that period the previous year.

“All of the things that were viewed as an unfortunate situation for Iceland became an incredible opportunity for U.S. travelers,” said Michael Raucheisen, regional sales executive for the airline. Citing the currency collapse, the Lonely Planet guidebook’s U.S. staff named Iceland one of its “hot” destinations for 2009.

The bargains born of economic catastrophe haven’t run out. Icelandair offers $399 round-trip airfare from New York or Boston (the carrier does not offer service from L.A.) to Reykjavik, though you must book online. Add $80 and book by Feb. 13, and you also get two nights at a hotel and breakfast, part of the company’s Winter/Spring Budget Getaway, good through April. Meanwhile, hotels and tour operators have continued to trim their prices.

But those bargains may not last. Because Iceland is primarily a warm weather destination -- with half its tourist traffic from June to August -- demand will likely push up prices this summer.

Although Iceland may not be a bargain basement locale, it finally makes sense for travelers who have been drawn to its bleak mystique but repelled by its stratospheric tab. As the Tourist Board’s Gustavsson put it, with typical Icelandic candor, “You can’t say Iceland is cheap-cheap, but it is cheap.”

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travel@latimes.com

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If you go

THE BEST WAY TO ICELAND

From LAX, service to Reykjavic begins on American, Virgin America, Air New Zealand, US Airways, United, Virgin Atlantic, Air France, Air Tahiti Nui and connects (changing planes) to Icelandair. Restricted round-trip fares begin at $873.

TELEPHONES

To call numbers below from the U.S., dial 011 (the international dialing code), 354 (Iceland’s country code), and the local number.

WHERE TO STAY

Motel Best, 7 Stapavegur, Vogar; 866-4664, www.motelbest.is. Clean, Spartan accommodations and helpful management, about halfway between Keflavik International Airport and Reykjavik, the capital. Doubles begin at $190, including breakfast.

Northern Light Inn, Blaalonsvegi, Grindavik; 426-8650, www.nli.is. Located in a starkly beautiful lava field next to the famous Blue Lagoon. Doubles begin around $130, including breakfast.

Hotel Borg, 11 Posthusstraeti, Reykjavik; 551-1440, www.hotelborg.is. A beautifully appointed Art Deco hotel in the heart of old Reykjavik. Doubles begin at $273.

Hotel Ranga, 851 Hella, Iceland; 487-5700, www.hotelranga.is. A luxury countryside hotel in South Iceland, which caters to aurora watchers. Doubles begin at $226, including breakfast.

WHERE TO EAT

Cafe Paris, 14 Austurstraeti, City Center, Reykjavik; 551-1020, www.cafeparis.is. A popular and congenial cafe in the heart of Reykjavik’s old city center, with a range of light fare. Entrees about $10 to $15.

Anaestu grosum, 20 B Laugavegi , Reykjavik; 552-8410, www.anaestugrosum.is. Good vegetarian fare at this centrally located Reykjavik restaurant. Entrees run about $10 to $15.

Lava Restaurant at the Blue Lagoon, 240 Grindavik; 420-8806, www.bluelagoon.com. Innovative interpretations of traditional Icelandic meals, from pickled salmon with blueberries to baked cod loin with tomato jam. Entrees about $15 to $40.

SEEING THE LIGHTS

Plan your trip during the spring or fall equinoxes, when auroras are more active.

Select a span of nights when there is little or no moonlight. Avoid city lights. If you can’t see stars, you won’t be able to see an aurora.

Plan to watch the sky from about 10 p.m. to 2 a.m., and be prepared to wait. Once it starts, auroral activity can last 30 minutes.

Although you can see the lights on your own, organized tours are plentiful. Tours cost from about $90 per person (for an evening excursion from Reykjavik lasting several hours) to $1,100 per person (for a four- to five-day package that includes lodging, transportation and other activities).

If you are serious about seeing the lights, you can also book at least a week in Fairbanks, Alaska; Yellowknife, Northwest Territories, Canada; or Tromso, Norway, all favorable spots close to the geomagnetic poles.

TO LEARN MORE

Scandinavian Tourist Board (including Iceland), (212) 885-9700, www.goscandinavia.com or www.icelandtouristboard.com.

latimes.com/iceland

Icy beauty

Go online for more photos of Iceland.