To describe the mood of the Iranian aviation industry as “upbeat” would be something of an understatement. After a decades-long embargo that blocked Iran from forging ties with the rest of the world, the Islamic Republic flung opens its doors on January 16, 2016 – Implementation Day for the lifting of all nuclear-related sanctions. Its reintegration culminated from years of diplomatic wrangling between Iran and the P5+1 (USA, UK, France, Germany, Russia, and the People’s Republic of China) group of international negotiators.
As the first global conference held in Tehran for nearly 40 years, CAPA’s Iran Aviation Summit in January was considered a litmus test for overseas interest in the Middle East’s second largest economy.
It did not disappoint: 160 foreign delegates from 35 countries descended on the summit en masse, scrambling for the attention of senior officials in the government and Iran’s 16 domestic airlines. Aircraft manufacturers, lessors, financiers, IT specialists, spare parts suppliers, maintenance firms and interior designers were among the myriad companies looking to drum up business.
When it came to route development opportunities, it was clear that some carriers already had a first-mover advantage. “During sanctions we started very heavy cooperation: six [daily] flights to Tehran, seven cities [in total],” Temel Kotil, CEO of Turkish Airlines, says.
“We will continue as usual, but now we increase the pace. When the sanctions are removed, travel between Turkey and Iran will be as usual, and also travel from Iran to the world will be as usual, but other outsiders – international travellers – will come here in big numbers. For that, Iran needs us to bring them from all over the world.”
He said demand for flights between Turkey and Iran will double within one year, fuelled by a post-sanctions boom in business traffic that will increasingly rely on sixth-freedom connectors. Whether or not Turkish Airlines is permitted to carry those passengers – the flag-carrier has already used up its landing rights under the existing bilateral agreement – remains to be seen.
But Kotil seems confident that Tehran will take a pragmatic approach to liberalisation given the wider economic benefits. “If they allow us more frequencies that will be lovely, otherwise we increase the size of the aircraft,” he says, noting that load factors on Turkish Airlines’ flights to Iran average about 85%. “I believe they will increase [the traffic rights], because they need us, we need them.”
There is no denying that Istanbul became a crucial bridging point for Iran during the country’s decades of isolation. Turkey now accounts for the single largest share of Iran’s outbound capacity when measured by Available Seat Kilometres (ASKs). Alongside Turkish Airlines, which has the strongest presence in the country pair, five Iranian carriers and two Turkish low-cost carriers are active in the market.
However, Istanbul is just one of several sixth-freedom hubs in the region. Despite falling behind the Turkish gateway in terms of ASKs, Dubai is still ahead when it comes to seating capacity – a consequence of the shorter flying time on most routes from Iran. In March, 127,000 seats were flown between the Islamic Republic and Dubai, with nearly two-thirds being provided by Emirates and its short-haul affiliate flydubai. The corresponding figure for Istanbul was 106,000.
Further afield, point-to-point traffic is also steadily picking up. In Germany, for example, early growth by Germania is now giving way to expansion by flag-carrier Lufthansa, which will increase its Frankfurt- Tehran service this summer as well as adding a new link from Munich. ASK capacity in the country pair has risen 32% over the two years to July, with Tehran-based Mahan Air also launching Munich flights to complement its pre-existing Düsseldorf service.
Though eager to hit the ground running as the country reconnects with the world, Iran’s long-suffering airlines are severely handicapped against their foreign rivals. Some carriers, including Mahan Air, which has overtaken flag carrier Iran Air to become the Islamic Republic’s largest airline, remain subject to terrorism-related sanctions. The designation excludes them from business dealings with international companies, impeding their growth prospects as the market opens up.
Even for airlines that are able to sign deals with western suppliers, such as Iran Air, the road ahead will not be easy. Decades of sanctions have blocked the flag carrier from sourcing planes through the usual channels, leaving it with an average aircraft age of 27 years.
A tentative order for 118 Airbus jets – announced in January – has opened the door to mainline fleet renewal, but training Iranian pilots and engineers for new-generation aircraft will be a time-consuming process. Financing it will also be tricky, with western banks treading cautiously in the unfamiliar Iranian market.
Undeterred by the scale of the challenge, government officials are pledging to transform Tehran’s Imam Khomeini International Airport (IKA) into a sixth-freedom mega-hub that can rival any of its neighbours. Two French companies – Aéroports de Paris and Bouygues – have signed a Memorandum of Understanding aimed at lifting IKA’s annual capacity to 34 million passengers by 2020.
The gateway handled just 7.2 million passengers last year, while another 13.5 million people passed through Mehrabad International Airport, Tehran’s domestically-focused gateway. By way of comparison, Dubai International Airport processed more than 78 million passengers last year.
Iraj Ronaghi, commercial VP of Meraj Airlines, says that the government had always intended IKA to function as an intercontinental sixth-freedom connector. He attributes the tearaway success of rival hubs in the Persian Gulf – Dubai, Abu Dhabi and Doha – partly to the debilitating impact of sanctions on Iran’s aviation sector.
“IKA was planned for these activities,” Ronaghi said of the airport, which opened its doors in 2004. “But because of what happened and all the sanctions, it [the flow of traffic] moved gradually to the south and also to Istanbul.”
Several attributes would give Tehran a competitive edge over its regional rivals, he continues. The capital’s high altitude and temperate climate provide clear technical benefits, while its geographical location offers more direct routings on flights between Europe and south-east Asia. A large, highly-skilled indigenous workforce also guarantees low labour costs.
“We don’t have problems with manpower. Our engineers are skilled, our pilots are well trained. Most of them can communicate in English,” Ronaghi says. “The country was not that closed. We had our training abroad.”
Despite talking up Iran’s long-term prospects, however, Ronaghi was sceptical of the rose-tinted forecasts coming from some quarters.
Government projections that the country needs to buy 500 aircraft over the next decade are ambitious, he believes, echoing reservations from several western analysts. Iran currently has about 250 aircraft in its national fleet – 150 of which are operational. Rob Morris, head of consultancy at Flightglobal Ascend, estimates that 300 deliveries would provide the optimal balance between replacement and growth units.
“The best thing to do is have a programme of replacement and gradually add to the fleet,” Ronaghi says. “And I’m sure our authorities will do that.”
Outside of the Islamic Republic, Iran Air is the only Persian airline that commands widespread brand recognition. The flag-carrier was the focal point of Iran’s tentative mega-order for 118 Airbus aircraft in January, which included an unexpected commitment for 12 double-decker Airbus A380s. It is already making plans for rapid network growth, promising to scale up European frequencies and launch a new service to Toronto.
To a domestic audience, however, Iran Air is just one of 16 local carriers. Indeed, it is not even the country’s largest. Privately owned Mahan Air has overtaken the flag carrier in almost every metric in recent years: passenger traffic, freight traffic, revenue and fleet size. The trouble for Mahan, unlike Iran Air, is that it still faces terrorism-related sanctions over alleged support for Iranian military activity in Syria.
Government officials are now considering “legal actions” to remove Mahan from the US Treasury’s list of sanctioned entities, eager to see it join the shopping spree for western-built aircraft. Several other Iranian carriers – including Meraj Airlines and Caspian Airlines – also face ongoing terrorism-related sanctions. Unless and until their restrictions are lifted, these carriers have no choice but to rely on the black market when pursuing fleet modernisation.
The situation is borne out by their network-development plans. Despite adopting the same East-to-West model as Iran Air, Mahan has prioritised route launches to the capitals of Russia and Ukraine. Meraj is giving Europe an even wider berth, turning its attention to Turkey, Iraq and the Caucasus.
The skies are more open for the country’s third largest carrier, Iran Aseman Airlines, which is free to spread its wings as it pleases. Mohammad Gorji, VP of executive affairs and fleet development, tells Routes News that he wants to grow Aseman’s 21-strong operational fleet to 100 units within five years, primarily by sourcing second-hand aircraft. The carrier will retain its focus on short-haul services, exploring opportunities in the UAE, Turkey, the Commonwealth of Independent States, Afghanistan and Pakistan. Its former route to Stockholm could be restored during a later wave of expansion, Gorji adds.
Two of Iran’s island-based carriers are also ready for sanctions-free growth. Kish Island is already one of the country’s most-visited destinations, prompting its namesake Kish Air to look as far afield as Vienna to entice new tourists. Qeshm Air, named after the island in the Strait of Hormuz, is meanwhile focusing on charter opportunities – both for tourists visiting Qeshm Island and for pilgrims heading to Mashhad.
As Tehran begins the lengthy process of modernising and maturing its aviation sector, many of the near-term opportunities are being snapped up by foreign carriers.
British Airways and Air France are both restoring Tehran to their route networks this year, having suspended flights in 2012 and 2008 respectively. Austrian Airlines, a subsidiary of Lufthansa Group, is doubling Tehran frequencies and making Isfahan its second Iranian point. Oman Air is quadrupling its summer capacity to Tehran, while adding a new link to Mashhad.
Fewer announcements have come out of Asia, although Kazakhstan’s Air Astana is launching Almaty-Tehran. With the transport ministries of Switzerland and Japan also reportedly holding Iranian talks, the steady stream of new routes looks set to continue well into 2016 and beyond.
Moreover, it is not only business and tourism flows that are fuelling demand. VFR (visiting friends and relatives) traffic is another key driver, putting the spotlight on the foreign country with the single largest contingent of ethnic Persians.
Mohammad Khodakarami, deputy director of Iran’s Civil Aviation Organisation, says: “From Iran’s side, there is no barrier to establishing flights between Iran and United States. Before the [1979 Islamic] revolution, Iran Air had daily direct flights to the United States. We know that there is demand... We are sure that the load factor will be very great. So, purely from the aviation side, we welcome establishing these flights.”
While there has been a considerable gap since then, non-stop flights between the two countries no longer seem implausible any more.