Sounds like a good plan. Though, there isn't that much to do in Reykjavik except drink, and compared to HK it's microscopic, so I wouldn't spend too much time there. Iceland's real attractions are the otherworldly outdoors and the perpetual summer sun. Oh, and make sure you don't miss the Blue Lagoon!

Can anyone recommend a TO for a tour around Iceland either self-drive or escorted? I'm thinking of going in August.

Having just come back from KEF, I can let you know the most commonly advertised agencies around Reykjavik which can cover almost any tour you can think of:
http://www.re.is
http://www.icelandexcursions.is
http://www.bustravel.is

These should give some idea of what is available, and there are even more specialised operators out there. Also worth looking at these two sites for the hard copy guides found all over town:
http://www.visitorsguide.is
http://www.whatson.is

Thanks very much for that bcMatt - I'll start reading and hope my planning will fall into place.

One more question - how difficult is it to cross unforded rivers in August? All the guides and online info suggests that the interior is more than an everyday challenge (even in a 4x4), and I'm not really sure if I am capable of doing it ................... perhaps I should get a professional driver ....................

Iceland Express
 

Rather than use a mileage award, the cheap way to Iceland is the Iceland Express airline.

Flew with them this weekend STN-KEF-STN and can confirm that they are a decent enough LCC.

Not TOO tightly packed into together; option to rent personal entertainment system; pricey food and drink of course (although booze cheaper than on CO or UA :p) but hey, this is Iceland; and on time (in fact early into STN on way back). The only slightly annoying thing is that for some reason there is no OLCI facility at KEF! And the lack of miles :eek:

Just to update that I have booked a DIY 11 days holiday in early July using Easyjet and Iceland Express (Basel - LGW - KEF), 5 days in Reykjavik including two day trips to the Snaefellsnes peninsula and the Jokulsarlon Glacial Lagoon, and what looks to be a fantastic 6 day itinerary with ICELAND ON TRACK who are associated with the Tourist Board of Iceland. I have had nothing but helpful advice and prompt service so far from this tour operator and am looking forward to my visit.

I intend to pay for my accommodation on arrival (arranged by I O T for me within the budget I asked for) and whilst I will pay I O T before arrival (package arranged in Euros), I will try to pay for as much as possible in Icelandic Krona because the Euro seems to be getting stronger every week.

Iceland is still not cheap, but I think that I will certainly get to see what I want to see and for a price that I can afford.

Thanks BCMATT for your help. You put me on the right road, and I'm most grateful.

Customizing packages?
 

I see that Icelandair is throwing some very nice packages. My situation is this. I want to take advantage of the hotel and air, but want to spend extra time in Iceland so that I can drive around with a friend in the countryside (based on some of the tips I've seen here ^)

In other words, assuming a 3 night package flight+air, can I extend the departure date from Iceland itself? I would, of course, arrange stay for the other nights and car on my own, or does the package limit me to leaving iceland in 3 days?

Any suggestions on how to structure this? Looks like if I get everything separately (air, lodging, car rental) it will be very expensive... Hope this isn't too convoluted.

All I can say is that car hire is fiendishly expensive and there is a supplement if you pick up or drop off at KEF. You will have to limit your trips to the Ring Road and not try to go through the interior which requires special skills, 4WD and an amazing list of spares.

You might like to consider bus tours - Reykjavik Excursions seem to offer a wide variety with frequent departures.

We were there a couple years ago and the stopover rates were good for up to 7 days. I think if you tell them you want to stay longer they would work with you at no additional cost.

Things were incredibly expensive when we were there since it was before the collapse of the Krona. We chose to stay at a B&B since it was a little less than a hotel and within walking distance of downtown, but the car prices were insane.

Iceland Air might be able to help you organize the other aspects of the package but we just booked things ourselves through places like Hotels.com and the various online car rental sites.

We didn't book any tours via a company/tour operator because we wanted maximum flexibility of our short time there and the cost was comparable (even when gas was $8/gallon) . We were very happy with the results too because we had a chance to go at our own pace to all the touristy sites and visit a few other places along the way no tour companies will stop at.

If you'd like to send me a PM I'd be happy to share more of my experiences there. Just keep in mind it was a couple summers ago so I can't describe costs all that much.

To the above, I most certainly do not want to do any bus tours and want maximum flexibility. Of course we'd stick to the ring road, and am willing to bear the cost of renting a car for 3 days. ~$500 usd without gas, right?

I think a tiny car was $200/day for us, but the change rate then was around 70:1 so it's much cheaper than when we went. Gas was about $2 per LITER at those rates as well, but we only filled up once since the car got 45 miles per gallon. The cars were much more expensive if you needed to rent an automatic transmission so I'd highly recommend a manual.

Check your PM for some other thoughts I sent regarding your questions about things to do/see.

Thanks for the ideas.

Sadly, I can not extend my stay in Iceland if I buy the package, but I'll figure something out.