Iran Aims to Become Regional Air Transit Hub

In February, immediately after the implementation of the nuclear deal, dubbed as the Joint Comprehensive Plan of Action, Iran placed orders to purchase dozens of long-distance European jets to renew its commercial air fleet.

The country announced plans to invest $27 billion in an airline fleet capable of taking on the region’s super carriers.

The orders, which included Airbus A380, the world’s largest jetliner, positioned Tehran as a potential long-term transit center between East and West to rival regional hubs such as Dubai, air officials and analysts said, Reuters reported.

Observers said it sent a political warning to Iran’s neighbors not to ignore the Islamic Republic’s emergence from isolation, reads an article recently published in US-based think tank Eurasia Review.

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Iranian officials have openly called for the revival of the country’s historical position as a center for communications in the region, an emphasis that is in retrospect reminiscent of Iran’s position in taking back its pre-sanctions share from oil markets.

Iran’s path to the purchases appeared to be one with lots of ifs and buts. However, the US Treasury Department recently loosened the grip on Iran, even though several months late, allowing Tehran to finalize agreed purchases even from Boeing.

 Int’l Airlines Resuming Flights

A number of international airlines are also rushing to resume flights to Iran in the hope of tapping into increasing opportunities in the country after the recent lifting of sanctions.

Last week, KLM resumed flights from Amsterdam to Tehran after a three-year halt. The resumption, part of a planned Air France-KLM comeback, includes four return flights per week. Paris-Tehran flights have also been resumed much earlier than the previously scheduled date in January.

British Airways has also resumed direct flights to Iranian capital Tehran since July. On September 1, the airline finally made its comeback to Iran after four years. “The new six times a week service … opens up exciting new prospects for Iran as a tourist destination thanks to its rich heritage and culture, unique architecture, and world-class food and delicacies,” British Airways said in a statement issued on the same day. The airline will move to daily flights from winter.

German airline Lufthansa has also announced it is ready to increase flights to Tehran and other Iranian cities. Imam Khomeini International Airport says it now hosts 57 domestic and foreign airlines.

Apart from boosting Iran’s tourism and transit revenues, the resumption of European flights is expected to be good news for the country’s expatriates who have had to travel to Turkey, UAE and Qatar for connections.

Non-Europeans are also joining. Last month, Thai Airways celebrated its first landing in Tehran. Air Asia reportedly resumed direct flights to Tehran, too. The Malaysian airline is not a first-timer in Tehran, as the route was first introduced in 2010. However, the route was suspended in 2012 due to Iran’s challenging economic and business conditions as a result of sanctions applied by the US.

“The recent lifting of sanctions opens up exciting new prospects for Iran as a tourist destination,” said Benyamin Ismail, AirAsia’s CEO.

Iran’s aviation industry has its own concerns. Domestic airliners worry that they may not be able to compete with international giants. However, this does not mean that they will be out of the picture.

“The prime cost for domestic airlines is less than for foreign competitors and this gives them more space for maneuver,” says Maqsoud As’adi Salmani, secretary of the Association of Iranian Airlines. However, he tells Iranian weekly Tejarat-e Farda that prices are second priority for passengers.

“The more service quality is improved, it is more likely for Iranian airways to obtain a larger share of the market,” he said.

 Prospects of Joint Venture

Experts say Iranian airliners are decades behind regional rivals when it comes to quality. But their domestic share seems not to be at stake. “Iran’s regulations ban foreign airlines from involvement in domestic flights, forcing them to use facilities provided by Iranian opposite numbers,” As’adi Salmani said.

The prospects of joint ventures between Iranian sides and foreign competitors also appear to be inevitable, given the global decline in demand.

As’adi Salmani implies that foreign parties could cooperate with Iranian partners to reduce their costs and help them offer better services, in return.

Iranian airliners, however, eye financial injection on the part of the government and banks for renovation of their fleet and infrastructure. As’adi Salmani says the parliament should intervene to allow financing from the National Development Fund.

Putting aside weak infrastructure and uncertainty in relations with the West, and economic challenges, Iran has to face cultural issues, too. The story of the Air France’s return could be illuminating.

The return of Air France came after a row in which the carrier’s female personnel objected to Iran’s rules requiring Islamic coverage when not on board. The Air France solution was to allow objecting female staff to refuse to work the route.

According to the Financial Times, Air France also plans to offer alcohol on board its thrice-weekly flights. This may also raise objection in Tehran’s orthodox circles.

The second largest economy in the Middle East, Iran, is viewed as one of the best emerging markets for the West.

The administration of President Hassan Rouhani has also reached out to attract hundreds of billions of dollars in foreign investment to boost its economy.

The vision portrayed for post-sanctions Iran by the government is promising, but it takes time to see if external and domestic pressures will allow the government to realize that vision.