Hmm, I've just Very quickly priced up a random weekend return trip and comes to a little over £200. Must also be noted that Icelandiar will be expecting a good percentage of traffic to feed into their U.S. & Canada network.
The Q400 shouldn't have an issue on ABZ-KEF. It's a surprisingly capable aircraft with 1350nmi range (ABZ-KEF is only 850). Air Baltic operated a few ABZ-RIX rotations on their Q400's and that is quite a it longer than KEF.