In 1937 Icelandair began its life, but with the name of Flugfelag Akureyrar, based primarily in the northern city of Akureyri. In 1943 the airline moved its base to the country's capital of Reykjavik and changed its name to Flugfelag Islands.
By 1944, a competitor appeared - Loftleidir, also known as Icelandic Airlines. In 1945, Flugfelag Islands became the first Icelandic air company to fly international flights, when service was inaugurated to Denmark. In 1947, Loftleidir followed suit, starting their own international flights, and in 1953, Loftleidir became the first Icelandic company to fly transatlantic flights from Iceland.
Fierce competition continued until 1973, when the two airlines merged. At first, they adopted the name Flugleidir, a hybrid of their two old names. In 1979, they changed the name to Icelandair, but they kept the name of Flugleidir for domestic routes.
For a long time, Icelandair relied on Boeing 707s for their international routes. That began to change during the 1990s, when they acquired new Boeing 757s. They use Boeing 737 jets for their short, domestic routes.