Icelandair is the flagship airline of Iceland, and it is based in its capital of Reykjavik. Its airline group owns and operates services to 25 cities in 12 countries on both sides of the Atlantic. Its main airport hub is the International Airport of Keflavik, although it also operates from the airport in Reykjavik and the Akureyri airport as well.
The airline was born in 1937 with the founding of Flugfelag Akureyrar in Akureyri, a city on the northern coast of Iceland. Their operations started in 1938 with a Waco YKS-7 seaplane. In 1940 the company moved its headquarters to Reykjavik and changed its name to the Flugfelag Íslands. Meanwhile three pilots in 1944 start a small company called Loftleiðir. Early on both Loftleiðir and Flugfelag Íslands airlines focused on domestic flights within Iceland.
In 1945 Flugfelag Íslands (Iceland Airways Ltd.) performs its first international flights to Scotland and Denmark. Regularly scheduled international flights begin in 1946 with a converted B-24 Liberator rented from Scottish Airways. Loftleiðir began its international operations in 1947 and was a pioneer in the low-cost services in the North Atlantic establishing itself in 1953. At that time the IATA determined and unified the fees that airlines should apply on its flights between Europe and North America; as Loftleiðir was not a member of the IATA, they established their own rates, much lower than that of the competition, and became one of the most popular companies to fly between Europe and North America.
Flugfelag Íslands and Loftleiðir were merged in 1973 taking the name of Flugleiðir in Icelandic and Iceladnair in English. Much of the traffic between Europe and the United States flies over Iceland, turning the island into an important point for those who take these trips, who are by far, the largest volume of passenger for the company. The airline route date from when Loftleidir began in 1963 with its low cost transatlantic flights.
After the merger, the airline became owner of the two airlines, but it did not assumed all its operations until October of 1979. In 1997 it created a subsidiary, Air Iceland, to operate domestic flights and some other short-range flights. In January of 2002, the holding company for the airline group became a larger group with 11 subsidiaries of which Icelandair is the greater one. In March of 2005 the group changed its name to FL Group and in October of that same year it carried out a restructuring process which divides the group into two parts, The airline Group and FL Travel Group which aims to take care of the business and leisure traveler. As of March 2007 the airline had 2,565 employees.
The airline transported more than and a half million passengers in 2005 (exactly 1,526,241), beating the record of passengers carried by the company in a year. The number of passengers was increased by 14.5 % over the previous year and has tripled since 1993. As an average the airline operated 28 flights per day in the year 2005.