This month, I chat with Thorir Ólafsson, Director of Digital Development at Icelandair, who brings a fresh perspective to aviation technology after transitioning from 12 years in banking. At Icelandair, he leads software engineering teams and delivery practices, focusing on a management philosophy that prioritizes problem-solving over task execution.
Ólafsson finds himself at the center of unique challenges facing North Atlantic carriers. Think about it: Icelandair has to keep up with the high digital experiences that North American travelers expect, while competing against much bigger European airlines. Plus, they pioneered that clever "stopover" feature that lets you spend a few days in Iceland at no extra cost - which sounds simple but created some real headaches for their booking systems.
In our conversation, he shares candid thoughts on practical team leadership in regulated environments and the unlimited potential of AI in modernizing decades-old aviation systems.
Key takeaways
- Problem-driven leadership: Give teams challenges to solve rather than predetermined solutions. This increases engagement and solution quality within regulatory boundaries.
- Strategic digital investment: As a North Atlantic carrier, Icelandair must meet North American user experience standards while competing with larger airlines through selective resource investment.
- Strategic partnerships: Development partners like Dreamix integrate into cross-functional teams, delivering broad value rather than isolated solutions.
- AI as complete transformation: AI fundamentally changes work processes, from legacy system modernization (30-year systems rebuilt in 45 minutes) to conversational customer interfaces.
- Build vs. buy strategy: Develop customer-facing components internally for control and consistency, while purchasing backend systems and focusing on integration work.
Q: You spent years in banking before joining Icelandair. What drew you to aviation? What do you currently do?
Ólafsson: I was in the banking industry for just over 12 years, and moving to aviation feels more like returning to the travel and tourism industry. Icelandair is essentially the main driver for Iceland's tourism industry, and I actually grew up on a farm where my family ran a hostel - which we still operate together on the East Coast.
Getting to Icelandair, even though it's an airline, felt like getting back to my roots in tourism. There's something beautifully circular about it: I might be leading teams creating digital solutions at Icelandair during the day, and then in summer, I'm at our family hostel greeting tourists who booked through our booking engine and flew with Icelandair. It was very refreshing to switch industries, and I recommend it to everyone before getting too comfortable in their current field.
Currently, I lead all our software engineering people and delivery practices at Icelandair. I'm responsible for ensuring we have the right skill sets in-house, organized in the right structure, and working with the right delivery processes. My role focuses on empowering our digital capabilities - it's more about people and processes rather than roadmaps or business cases.
Q: What's keeping you most excited at work these days?
Ólafsson: It might sound mundane, but our biggest opportunities lie in operations. We've focused heavily on customer-facing improvements in recent years, but now we're extending technology into airline operations. There are significant opportunities for optimizing processes and reducing costs. It's exciting to see ideas emerge, follow through on implementation, and witness cost savings happening quite rapidly.
Q: How do you manage innovation and idea generation while leading a large team in a heavily regulated industry?
Ólafsson: The key is having teams that are cross-functional enough and possess the right skill sets so we can bring them problems instead of solutions. The teams themselves can be innovative in figuring out the right solution for each problem. Instead of asking them to execute predetermined tasks, we ask them to solve challenges.
When a team figures out the solution themselves, they're much more engaged with it and follow through more effectively. This approach increases the quality of what they deliver because they want to prove they're doing the right thing. They need freedom and ownership of their tasks - not complete freedom, but the freedom to suggest how we solve problems within regulations and architectural boundaries.
Usually, they come up with well-thought-through solutions with good argumentation. This empowers team members to innovate because they need to follow trends and try the newest technologies, knowing they're the tech experts. In a corporate, regulated environment like ours, this empowerment through ownership is crucial.
Q: What's your perspective on current industry trends and challenges from the standpoint of a North Atlantic carrier?
Ólafsson: One major trend is the New Distribution Capability (NDC) - a new standard from IATA that's reshaping how we offer aviation products. It will change how customers book aviation products and offerings, but it's heavily complex for airlines to implement. It's both a challenge and a trend that no airline can afford to ignore.
As Icelandair, being a North Atlantic carrier presents unique challenges. We operate a hub-and-spoke network, and our biggest market is North America, where technology trends are ahead of Europe. North American airline apps are much better than European ones, and biometrics at airports are more advanced. Our North American travelers are accustomed to great user experiences, so we need to be on par with their best experiences - sometimes even better than much larger European competitors.
We have to be very smart about where we invest our digital resources. We can't do everything, so we must be selective about where we put our money. If we were a Europe-only airline, we could afford to have slightly lower standards, but our business model demands excellence.
We were also the first airline to offer what's called "stopover" - allowing passengers traveling between North America and Europe to add up to seven days in Iceland at no extra cost. This created unique digital challenges because we needed non-standard booking flows that existing systems like Amadeus didn't initially support.
Q: Let's talk about AI. What excites you about it, and what keeps you cautious?
Ólafsson: AI is not only huge - it's multidimensional and will affect us in many different ways. There's generative AI that people use in daily life, which changes customer expectations because they're getting used to interacting with ChatGPT and other large language models. Customers want things to be easier, faster, and more conversational.
Then there's agentic AI helping with automation - things you might have done with robotics before can now be done better with agentic AI. In software engineering, AI pair programming tools like Copilot or Cursor are becoming smarter with time.
What really excites me is the potential for legacy system modernization. I've heard about projects where AI reads entire codebases of 30-year-old systems and rebuilds them according to new standards. US Bank had a legacy system that took weeks to analyze but only 45 minutes to regenerate, with just one or two weeks needed for QA and production deployment - instead of a many-month project.
It's not just a new tool in the toolbox; it's a whole new toolbox appearing every minute. What excites me most is doing boring, heavy tasks more easily - optimization within the company, being smarter about using tech to decrease costs or increase revenue.
However, we must be cautious because AI evolves very fast, can be wrong, and we need to keep our data safe. You have to stay on top of things well enough to evaluate when it's mature enough to use. New opportunities arise every week - you come to work and someone says, "Hey, I saw this yesterday."
Q: What aviation problems require custom software development rather than off-the-shelf solutions?
Ólafsson: We're generally a "buy first" company, but the exceptions are customer-facing components - the app, websites, and booking flow - which we develop internally. When you buy a lot of software, you still need to integrate it, gather data, and analyze it.
Our software engineering falls into roughly two boxes: front-end development for customers, and integration/data work. We want a strong user experience aligned across our digital channels, which is easier to achieve with internal development rather than white-labeled solutions. We also want control over these systems because the digital landscape evolves rapidly - a website becomes obsolete in a few years.
It's expensive to have customer-facing solutions as third-party or totally outsourced systems, while system integrations or data warehousing are more like pipelines you put in place that stay there for 20 years. It's a very pragmatic approach that I totally agree with.
Q: How do you see airline digital experiences evolving in the next few years?
Ólafsson: The regulations are strict and backend systems like Amadeus are monolithic - great systems, but huge with many customers, so they move quite slowly. I think we'll see even more personalization throughout the entire journey: how you're offered products, how you purchase and modify bookings, and how you manage your travel.
On the day of travel, it's about getting the right information at the right time in a more seamless, personalized way - a true "know your customer" approach where we're speaking to you as an individual based on your history and preferences.
Paper tickets will largely disappear. Regulations require us to offer them, but most travelers don't use them anymore. We have strong uptake for our app, with almost half our travelers using it for boarding passes and digital tickets. Biometrics will become much more widespread, especially as US airports lead the way with face-scanning technology - you simply walk through without needing to scan anything.
Q: What about sustainability in aviation?
Ólafsson: Sustainability is huge, driven primarily by regulations rather than business drivers. We need regulations to make progress happen. There are now requirements for sustainable aviation fuel (SAF) usage, with fees for non-compliance.
Icelandair collaborates with other airlines and aircraft manufacturers prototyping new aircraft. We're hoping to have our domestic fleet running on electricity within the next 15 years, though this depends on manufacturers. I'm hoping for breakthroughs because progress in this field has been quite slow over the past 10-15 years.
The solution will likely be a mix of SAF for long-range flights and electricity for short-haul flights. In Iceland, we have very cost-efficient electricity from renewable sources, so electric domestic flights would be ideal for us.
