In Sep 2017 Icelandair started services to Philadelphia and Tampa, US starting in Sep 2017. In May 2017, Icelandair unveiled a glacier-themed special livery on Boeing 757-200 named Vatnajökull, the name of Europe's largest glacier. The special livery was created in order to commemorate Icelandair's 80th anniversary. It also introduced the Boeing B767 into the fleet to cope with the expansion of the airline as it awaited for new deliveries placed with Boeing for B737 Max.

In 2018, it saw the airline receive a new aircraft type, when in April 2018 it took delivery of the first new generation Boeing 737-800 Max to open up new routes and replace older types such as the B757 and B767. Also in 2018, Icelandair started flying to Kansas and Cleveland, US and commenced weekly flights to and from Dallas Ft. Worth.

However, 2018 was also marked by significant financial pressure. Increased competition, rising fuel costs, and operational challenges contributed to declining profitability. A major turning point came with the collapse of Iceland’s low-cost competitor WOW air in early 2019, which, while removing a rival, also created short-term instability in Iceland’s aviation market.

In 2019, Icelandair sought to stabilize its operations and capitalize on the vacuum left by WOW air. The airline adjusted its route network, reinstating or increasing capacity on several routes that had been heavily contested. However, the global grounding of the 737 MAX in March 2019 forced the airline to suspend use of the new aircraft shortly after their introduction. Despite these setbacks, Icelandair continued to maintain a wide network, linking dozens of European cities with North American destinations such as New York, Boston, Chicago, and Seattle.

The year 2020 brought unprecedented challenges as the COVID-19 pandemic caused a near-total collapse in global air travel. Icelandair drastically reduced its flight operations, shifting temporarily toward cargo and repatriation flights. The airline grounded much of its fleet and implemented major cost-cutting measures, including layoffs and renegotiation of labor agreements.

In 2021, Icelandair began a gradual recovery as travel restrictions eased. The airline rebuilt its network step by step, reintroducing transatlantic services and restoring key European routes. Demand was initially driven by leisure travel, particularly from North America to Iceland, which had positioned itself as a relatively accessible destination during parts of the pandemic. Icelandair resumed flights to major U.S. gateways such as New York (JFK), Boston, and Chicago, while also restoring connections to European capitals. While the Boeing 737 MAX returned to service globally, Icelandair reassessed its long-term fleet needs, recognizing that the aging Boeing 757 fleet would eventually require replacement.

On 9 March 2021, Icelandair Group announced that Air Iceland Connect is to merge its sales operations with Icelandair by uniting domestic and international brands from 16 March 2021 and continuing the current flight operations under the Icelandair brand. The company Air Iceland Connect continues to operate domestic flights under its own Air Operator's Certificate but using the Icelandair brand.

A significant development came in 2021 when Icelandair announced an agreement to acquire Boeing 737 MAX aircraft in both the -8 and -9 variants, reinforcing its commitment to narrowbody efficiency for medium-haul routes.

In 2022, Icelandair announced the selection of the Airbus A321LR, and later the A321XLR, marking the first time in decades that the airline committed to Airbus aircraft. This decision represented a major shift away from an all-Boeing fleet and was driven by the need for fuel efficiency, range flexibility, and lower operating costs. The A321LR and XLR were intended to replace both the Boeing 757 and, on some routes, complement or substitute the Boeing 767. Deliveries were scheduled for the mid 2020's.

In January 2022 Icelandair updated the airline livery, with new colours drawn from Icelandic nature, including the beloved northern lights. This is the first time the whole livery design has been changed since 2006, and is part of a complete refresh of the Icelandair brand. TF-ICE, a Boeing 737 MAX 8 was the first of Icelandair’s fleet to be painted in the new livery.

By 2023, Icelandair had largely restored its pre-pandemic network and, in some areas, surpassed it. The airline continued to grow in North America, adding destinations such as Detroit and Pittsburgh, reflecting a strategy of targeting underserved secondary cities that could support transatlantic service via Reykjavik. The airline also continued to operate Boeing 767 aircraft on higher-demand routes, maintaining a mixed fleet to balance capacity and flexibility.

In 2024 and into 2025, Icelandair’s transformation has continued with the gradual introduction of Airbus narrowbody long-range aircraft, marking a new era in its operational model. The A321LR began to take over routes previously served by the Boeing 757. Throughout this period, Icelandair has also strengthened its partnerships and codeshare agreements, enhancing connectivity beyond its own network.

By the present day, Icelandair stands as a restructured and modernizing airline, with a diversified fleet that includes Boeing 737 MAX aircraft, remaining Boeing 757 and 767 units, and the newly introduced Airbus A321LR, with A321XLR deliveries on the horizon. Its network continues to emphasize transatlantic connectivity via Iceland, with a balance between major hubs and secondary cities in both Europe and North America.