An economic battle is likely for dominance of the skies over the Persian Gulf after Iran decided to invest $27 billion in an airline fleet capable of taking on the region’s supercarriers.
By ordering dozens of long-distance European jets last month after the lifting of sanctions, Iran is positioning Tehran as a potential long-term transit point between East and West to rival regional hubs such as Dubai, air officials and analysts say, Reuters wrote.
The move is underscored by Tehran’s choice of Airbus A380, which is the world’s largest jetliner.
“Certainly this is our historical position: we have always been a center for communications in the region,” Iran’s Minister of Roads and Urban Development Abbas Akhouni said in an interview.
The investment also points to a strategy to take part in the globalization of the transport industry alongside Persian Gulf rivals, even though the social and economic challenges of building a world-class hub are formidable for Iran.
“We used to be a very important airline in the region and globally, so of course we want to play our role fully once again,” Iran Air Chairman Farhad Parvaresh said.
Iran signed a deal for 118 Airbus jets and contracts to expand the main Tehran airport, during a visit to Europe by President Hassan Rouhani, less than two weeks after sanctions were lifted in exchange for limits on Iran’s nuclear program.
Not all the planes are expected to go to IranAir, but Tehran says it will give the flag carrier priority.
“The A380s don’t arrive for another five years,” Parvaresh said in an interview. “Before then we need to watch closely the expansion of Imam Khomeini Airport.”
Outsiders Eye Iran’s Market
Carriers in the Arab countries in the Persian Gulf region dominate long-haul travel thanks to smart, efficient hubs and a strategic position that places two-thirds of the world’s population within an optimal 4-8 hours’ flying time from Dubai, home to regional heavyweight Emirates.
The only serious regional competitor to these carriers for now is Turkish Airlines. But the variety of short- and long-haul jets acquired by Iran suggests it wants a share of the spoils in the future.
“(IranAir’s) obvious intention is to become part of the network operation that the [Persian] Gulf carriers have operated so effectively,” said Peter Harbison, chairman of airline thinktank CAPA, which held an aviation meeting in Tehran last month.
“Iran is very well geographically positioned ... We are obviously looking a few years out to get to that stage, but it is really where they need to be in 10 years’ time.”
Even before then, it faces a contest to serve its own market as foreign carriers will be eying opportunities in the country of 80 million.
The International Air Transport Association, a trade association, has predicted Iran’s market will more than treble from 12 million passengers a year now, mostly domestic flyers, to 44 million by 2034.
“While the airlines here (in Iran) are rebuilding their capacity, the regional carriers ... are looking to suck traffic out over the [Persian] Gulf airports,” Dick Forsberg, strategy chief at aircraft lessor Avolon, said during the CAPA Iran Aviation Summit.
“It is going to be very hard for the airlines here to recover that leakage in the short- and perhaps even medium-term.”
Already 28 foreign carriers serve Iran and more are likely to arrive, says CAPA.
“We are not afraid of competition,” Parvaresh said. “We have good relations with most other carriers and there is no problem. I think Iranians, for example, will want to mainly fly with IranAir.”
Playing “Catch-Up”
Parvaresh said IranAir would start flights to Toronto, home to an estimated 50,000 Canadian Iranians.
It is also widely expected to seek alliances to help it grow.
A Persian Gulf industry executive said it was too early to gauge Tehran’s plans, but added “Iran is a new market for everyone; there is enough demand”.
Iran would need huge investment to catch up with “deep-pocketed Persian Gulf rivals that are 25-30 years ahead,” he said.
With traffic of 6 million passengers a year, Tehran’s airport is dwarfed by Dubai’s 78 million. Iran plans to boost capacity to 45 million on the way to a target of 70 million.
Any attempt by IranAir to mimic the hub-based business model of Persian Gulf carriers could add a fourth big connecting airport to the three already operating: two in the UAE and one in Qatar.
“When you have such an early-mover advantage as the (Arab Persian Gulf carriers), there’s so much learning that it is extremely difficult to catch up. It’s not just about hardware and infrastructure but also about developing the skill, the management layer to operate competitively,” said a Dubai-based aviation analyst who asked not to be named.
Some experts have already questioned whether the region can sustain three hubs close together, especially in the event of a downturn, but Persian Gulf airlines say traffic remains buoyant.
Even so, other questions remain over Iran’s bid to divert international traffic across the Persian Gulf, including the impact of low prices on Iran’s ambitious airport construction plans.
Much also depends on how Iran regulates the new traffic as the government negotiates new bilateral air traffic accords.
“They don’t want to fall in the trap that Air India got into,” said CAPA’s Harbison, referring to an influx of foreign capacity before the local champion was ready to compete.
“If you have a liberal bilateral strategy and a liberal investment strategy in national airlines, then getting to a stage where there is something of a threat to the operations of [Persian] Gulf carriers is quite feasible in say a decade.”
