The Unfrozen north

It may be the marketing coup of the century: take a frozen lava field on the edge of the Arctic Circle, where the skiing is not great, the food is overpriced and the capital city is a windswept collection of multicolored concrete boxes, and turn it into one of the world's hottest winter vacation spots. How does Iceland do it? By touting its reputation for swinging nightclubs packed with platinum-haired babes and hearty Nordic men, its unspoiled natural wonders and, not least, the low-priced winter deals offered by Icelandair, which enjoys a monopoly on air service to the 40,000-sq.-mi. North Atlantic island. Off-season round trips from the U.S. to Reykjavik can be had for as little as $250, and two-day package tours for under $300.

Many tourists who come for the cheap fares--a lot of them students and budget travelers who first used Reykjavik as a stopover on flights to Europe--get hooked on the place and become regulars. "I've been here five times," says Karin Ciescik, 45, a New York insurance broker. "I'm a polar buff. I just love the cold." Jeff Warren, managing director of Britain's Windrush Management, chose Iceland for a company holiday. Why? "If we went to Tenerife, we'd just hang around on the beach and drink, mon, so we decided to branch out," says this burly, dreadlocked native of Jamaica after a day of snowboarding in the Arctic cold. "This is one of the few places I've ever been where you're planning to return even before you leave."

Such enthusiastic word of mouth has helped give the local tourist industry growth figures that a lot of FORTUNE 500 companies would envy: more than 53,000 Americans visited in 2000, up 20% from the year before, and the U.S. is now Iceland's No. 1 tourist market. Tourism generates 13.6% of Iceland's foreign earnings, making it the second biggest industry after fishing.

For those in their 20s and 30s, the biggest draw is the weekend night life. With more than 60 clubs packed into central Reykjavik, the drinking, dancing and nuzzling go on past 6 a.m. "The winters are long and hard here, and people get depressed, so we let it all hang out on the weekend," says Birgir Orn Steinarsson, 25, lead singer for an up-and-coming Icelandic rock group called Maus. Most revelers go from club to club in a giant pub crawl that can jam Reykjavik's narrow streets with up to 5,000 drunken kids every Friday and Saturday night. Some clubs feature deejays and techno rock, while others offer live bands playing anything from R. and B. to the alternative Icelandic rock that singer-actress Bjork made world famous. But music is hardly the only attraction. "Icelandic girls are just gorgeous," raves Mark Mascarenhas, 27, a medical student from New Jersey, sounding a little like a refugee from MTV Spring Break. "They enjoy sex and don't believe in marriage."

Aside from the club scene and first-rate restaurants like Laekjarbrekka, with its renowned game menu featuring wild reindeer, puffin and gannet, Reykjavik (pop. 170,000) does not exactly offer world-class attractions. Its main shopping street has more Chinese restaurants than chic boutiques, and everything is expensive (a beer in a club costs about $7). "We are not a country that offers high-class tourism," admits Oddny Oladottir of the Iceland Tourist Board. "But for people interested in nature and geology, you can see a lot of things in a small area."

Indeed, once outside the capital city, visitors find an unspoiled geological wonderland: a moonscape of lava fields covered with ice and snow; mountains, glaciers and volcanoes that still erupt periodically; waterfalls, geysers and hot springs, which provide 85% of the population with heating. Activities in the winter (when temperatures average around 35[Degrees]F) include dogsledding, horseback riding, snowmobiling--and swimming. No one ever goes in the frigid ocean, even in the summer, but numerous public pools filled with warm, sulfurous springwater offer indoor and outdoor swimming--not to mention soaking in cozy and convivial hot tubs.

And while all these foreigners are frolicking in Iceland's frigid winterscapes, where do the natives go on holiday? "We head for the sun and sand," says the tourist board's Oladottir. Their favorite destination: Spain.