Spas and volcano tourism: the scenic route to Iceland recovery

"It's post-apocalyptic," Elouise Carden exclaimed as she basked in steamy, glimmering turquoise water against a backdrop of jet-black volcanic rock.

The 28-year-old Londoner and her husband Daniel are among the thousands of tourists who have flooded into Iceland this year, drawn by whale safaris, geo-thermal spas such as this one - and a highly favourable exchange rate.

Still struggling to overcome the deep crisis that set in when its major banks collapsed in late 2008, Iceland is hoping the recent surge in tourist numbers will help put it on the route to recovery.

The small, north-Atlantic island just below the Arctic Circle abounds with natural beauty, from myth-like volcanic landscapes and geysers shooting jets of hot water and steam into the air, to the near-round-the-clock daylight in summer that keep Reykjavik's vibrant clubs and bars rocking through the night.

And with the Icelandic krona at rock-bottom - the currency has shed over 50 percent of its value in 18 months, from 70 kronur to the euro, to a current 172 kronur - an exotic getaway to Iceland has become increasingly affordable.

Going to Iceland "is really getting popular at home," said Elouise, who flew in for a romantic weekend.

"People realise it's less expensive. We were even quite worried when we saw the long line at the entrance" to the Blue Lagoon spa, which lies some 40 kilometres (25 miles) southwest of Reykjavik, she said.

As worldwide tourism figures were dragged down by the global downturn in 2009, the Blue Lagoon and the rest of Iceland saw its own tourist trade boom.

Visitor numbers jumped 12 percent last year to around 1.23 million people, or about four times Iceland's population, with German, French and British visitors topping the list, and the trend was set to continue this year.

The financial crisis brought a double windfall for the island's tourism sector, with low prices attracting foreigners while Icelanders hit by the crisis and the staggering cost of foreign currency, have increasingly decided to holiday at home.

Even Mother Nature appears to be working to pad the coffers of Iceland's tourist industry.

Last month a minor volcanic eruption turned a previously deserted part of the country into a major attraction, with visitors flocking to catch a glimpse of the still gushing lava.

"I hope the eruption continues for a while since it's very good for business," rejoiced Ingi Thor Jakobsson, who manages a hotel near the glacier Eyjafjallajokull, where the Fimmvorduhals volcano erupted on March 21.

Up until a year and a half ago, Iceland figured among the world's wealthiest nations thanks to a booming finance sector, but since the banking bust tourism has emerged as one of its only likely saviors.

Finance Minister Steingrimur Sigfusson even used a drawn-out clash with Britain and the Netherlands over compensation for losses linked to one of Iceland's failed banks, to put in a good word for the tourist industry.

"I call on our British and Dutch friends to come and join the tourism boom we're experiencing in Iceland right now," he said recently.

"Help us get our money back!"

Crowned the "best-value destination for 2010" by Lonely Planet guidebooks, there is no question Iceland is brimming with bargains, with finger-licking fresh fish dinners on the menu for less than 1,500 kronur (10 euros).

But to keep prices from tumbling too far, many establishments like the Blue Lagoon have started to list their prices ... in euros.

"Really? The prices have gone down? It doesn't seem like it!" 48-year-old Peter Iu of Hong Kong grumbled as he fished for his wallet in line at the Blue Lagoon cafe.

The entrance fee to the geo-thermal spa has been hiked to a hefty 23 euros (30 dollars), horrifying locals who see it as part of their national heritage.

Many jumped at a recent "two-for-one" coupon offer available only in Icelandic newspapers, for a chance to splash in the hot water next to wealthy foreigners.

"Otherwise it would be off limits to us," shrugged student and spa regular Sigrun Jona Norddahl.