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Air Hub Perspectives<br />
JULY 2016| ISSUE 9<br />
by Pang Yee Huat, Airline Development<br />
A SNEAK PEEK INTO IRAN’S<br />
AVIATION MARKET
A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
IRAN: A READY MARKET WITH HUGE POTENTIAL<br />
A Large Population And Strong Economy, Ready To Take Off<br />
Iran, officially known as the Islamic Republic of Iran, is home to one of the world’s oldest<br />
civilizations. Formerly known as Persia, Iran currently houses a population of 80 million,<br />
which is similar in size to Germany. Iran is the second largest economy in the Middle<br />
East and North Africa (MENA) region after Saudi Arabia, with an estimated Gross<br />
Domestic Product (GDP) in 2014 of US$406.3 billion. It is also the second largest<br />
population of the region after Egypt. Tehran is the country's capital and largest city, as<br />
well as its leading cultural and economic center.<br />
Iran is a major regional and middle power, with considerable influence in international<br />
energy security and the world economy through its large reserves of fossil fuels. It has<br />
the second largest natural gas supply in the world and the fourth-largest proven oil<br />
reserves. Iran’s economy is characterized by a large hydrocarbon sector, small scale<br />
agriculture and services sectors, and a noticeable state presence in manufacturing and<br />
financial services. Economic activity and government revenues still depend to a large<br />
extent on oil revenues.<br />
Lifting of Nuclear-Related Sanctions Presents Business Opportunities<br />
As a result of Iran’s nuclear programs, various sanctions have been imposed on Iran over<br />
the past decade which resulted in the country being isolated from the world politically<br />
and economically. When Iran demonstrated a peaceful nuclear project that met IAEA<br />
standards, a reconciliatory tone began to rise which resulted in United Nations (UN)<br />
nuclear-related sanctions being lifted on 16 January 2016.<br />
The lifting of the international trade sanctions against Iran opened up fresh trade and<br />
investment opportunities. Iran will be able to access about US$100 billion in frozen<br />
funds. It will also allow the country to increase its oil revenue exponentially to the tune<br />
of between US$3 billion and US$4 billion dollars a month by the end of the year even at<br />
the current low crude oil prices. The injection of funds will unleash a strong demand<br />
internally and offer numerous business opportunities for countries that trade and do<br />
businesses with the Islamic Republic such as Airbus and Boeing.<br />
However, a “snap-back mechanism” is in place to impose the sanction should Iran<br />
violate its side of the agreement - if, for example, it failed to keep its nuclear programs<br />
under the agreed strict limits. Meanwhile, terrorism-related sanctions still remains in<br />
place, which impacts entities such as Mahan Air from engaging in international<br />
business as it is still listed as an alleged sponsor of terrorism.<br />
These restrictions, which apply to companies located within the US and international<br />
companies located abroad, continue to present issues for companies seeking to deal<br />
with Iranian entities. For instance, in spite of Airbus inking a US$27 billion agreement<br />
with Iran shortly after the lifting of sanctions, the deal remains unclear as big banks still<br />
refuse to finance Iranian payments due to concerns over existing US sanctions.<br />
Similarly, Boeing is close to concluding a deal with Iran but the politically delicate<br />
agreement would still be subjected to US government scrutiny and approval.<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
OVERVIEW OF IRAN’S INTERNATIONAL AVIATION LANDSCAPE<br />
A Fast Growing <strong>Aviation</strong> <strong>Market</strong> With Potential For More Traffic And Connectivity<br />
Despite the sanctions being in place, OD traffic between Iran and the world has been<br />
progressing at a compound annual growth rate (CAGR) of 3% over the past five years.<br />
More noticeably, traffic recovered strongly in 2015, registering high of 6.8 million,<br />
which represents a 11% growth year-on-year (YOY).<br />
5 Year CAGR:<br />
+3%<br />
OD Traffic between Iran and the World<br />
6,841,495<br />
5,997,665<br />
5,526,583<br />
5,267,087<br />
6,142,220<br />
+11% YoY<br />
2011 2012 2013 2014 2015<br />
In terms of the top international destinations, the United Arab Emirates, Turkey and<br />
Germany remains the top three international air routes for Iran due to the close<br />
business and tourism ties between the various countries. With direct connectivity to<br />
Iran, regional hubs such as Malaysia and Thailand are amongst the top 20 aviation<br />
markets for Iran.<br />
Top 20 International <strong>Aviation</strong> <strong>Market</strong>s for Iran in 2015<br />
United Arab Emirates<br />
1,436,751<br />
Turkey<br />
1,177,236<br />
Germany<br />
465,775<br />
Saudi Arabia<br />
409,949<br />
Iraq<br />
389,269<br />
China<br />
260,100<br />
India<br />
218,882<br />
Kuwait<br />
176,327<br />
Bahrain<br />
174,664<br />
Qatar<br />
156,880<br />
Afghanistan<br />
156,657<br />
Italy<br />
118,081<br />
Sweden<br />
107,898<br />
United Kingdom<br />
102,857<br />
Pakistan<br />
95,460<br />
Malaysia<br />
92,097<br />
Armenia<br />
79,309<br />
Thailand<br />
77,385<br />
Oman<br />
72,726<br />
Japan<br />
67,863<br />
Sources: IATA Airport-IS<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
Tehran Has The Potential To Be An International <strong>Aviation</strong> Hub<br />
Tehran Imam Khomeni International Airport (IKA), the main international gateway of<br />
Iran, enjoys the same geographical advantage as the other Middle Eastern Hubs. In<br />
2014, IKA airport handled 6.5 million passengers, above its design capacity limits of 5<br />
million. IKA airport is designated to be developed over the next three years to handle 34<br />
million passengers per annum by 2020. Aéroports de Paris and French Construction<br />
Firm, Vinci, is expected to be appointed as the developer of IKA’s expansion. Two new<br />
terminals are expected. A free trade zone along with space dedicated to MRO services<br />
is also expected to be developed near IKA to promote the flow of cargo and aviation<br />
services through the region.<br />
Today, Tehran has two airports - IKA which is exclusively international, and Mehrabad<br />
which serves a mix of domestic and international traffic. With the two airport located on<br />
different sides of the city, it limits Tehran’s potential to be an international-domestic<br />
aviation hub. Until there can be better connectivity for their international and domestic<br />
traffic, international traffic plying between regional centres of Iran will continue to<br />
connect via hubs in Dubai and Istanbul which currently flies to multiple cities in Iran.<br />
Location of Tehran Imam Khomeni International Airport and other Key Middle East Hubs<br />
Great Circle Distance<br />
LHR<br />
SIN-IKA-LHR: 6,871mi<br />
SIN-DXB-LHR: 7,053mi<br />
SIN-AUH-LHR: 7,089mi<br />
SIN-DOH-LHR: 7,1174mi<br />
IKA<br />
DXB<br />
DOH<br />
AUH<br />
Iran’s Three Major Local Airlines: Ready for Growth<br />
The national carrier of Iran, Iran Air, currently operates to 25 domestic and 25<br />
international destinations such as London Heathrow, Frankfurt, Kuala Lumpur and<br />
Beijing. It is also known for operating the world’s oldest passenger B747, which was<br />
manufactured in 1976. Together with the other two major airlines, Mahan Air and Iran<br />
Aseman Airlines, the three carriers have average fleet ages of 24 to 25 years old.<br />
On 28 January 2016, Iran signed a historic deal with Airbus for the purchase of 118<br />
airliners (73 wide-bodies, 45 single aisle) including 12 A380 super jumbos worth US$27<br />
billion at list prices. Under the memorandum of understanding (MoU), the European<br />
aircraft manufacturer will train Iranian pilots as well as technicians to maintain the<br />
planes.<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
Iran’s Top Three Airlines by Fleet and Average Age of Fleet<br />
CURRENT<br />
FLEET<br />
33<br />
50<br />
35<br />
AVERAGE<br />
AGE OF<br />
FLEET<br />
26<br />
23 25<br />
Iran Air Mahan Air Iran Aseman<br />
Airlines<br />
According to Iranian officials, the country<br />
will receive eight Airbus planes in 2016 and<br />
the rest will be delivered until 2024. The<br />
new aircrafts will be assigned to Iran Air.<br />
The large aircraft orders are needed to<br />
replace Iran’s ageing aircraft and grow the<br />
in-service fleet, both of which have been<br />
difficult goals to achieve under sanctions.<br />
Iran Air has also expressed optimism that<br />
the airline will be re-admitted to IATA’s<br />
billing and payment systems, which will<br />
tremendously simplify its revenue<br />
collection and payments for over flights,<br />
airport fees and other areas. Iran’s travel<br />
trade is also ready to handle more<br />
operating airlines and sales of flights in<br />
Iran as the Global Distribution Systems<br />
(GDS) such as Amadeus is currently being<br />
used by travel agents.<br />
Resurgence of Foreign Airlines <strong>into</strong> Iran<br />
Since the lifting of nuclear-related sanctions, Iran has seen several new and<br />
returning foreign carriers in the past six months. It is certain that there will be many<br />
more new entrants including – regional carriers serving Iran, European carriers<br />
re-launching or increasing Iran services, and new services to and from Asia. From<br />
South East Asia, AirAsia X recently resumed services to Tehran with 3x weekly<br />
KUL-IKA and 3x weekly BKK-IKA services from 21 June 2016. Thai Airways and<br />
Korean Air have also announced plans to launch services to Tehran. From Europe,<br />
Air France has also recently resumed services to Tehran, joining Aegean Airlines,<br />
Germania, Alitalia, Lufthansa and Turkish Airlines. British Airways has announced<br />
that they will be launching 6x weekly London Heathrow – Tehran services in<br />
September 2016.<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
Airlines currently flying international routes to Iran<br />
Aegean Airlines<br />
Aeroflot<br />
Air Arabia<br />
Alitalia<br />
ATA Airlines<br />
Atlasjet Airlines, Inc.<br />
Austrian Airlines<br />
Azerbaijan Hava Yollary<br />
Belavia<br />
Caspian Airlines Service<br />
Cham Wings Airlines<br />
China Southern Airlines<br />
Emirates<br />
Etihad Airways<br />
Fly Baghdad Airlines<br />
flydubai<br />
Germania Fluggesellschaft<br />
Iran Air<br />
Iran Aseman Airlines<br />
Iraqi Airways<br />
Jazeera Airways<br />
Kuwait Airways<br />
Lufthansa<br />
Mahan Airlines<br />
Oman Air<br />
Pegasus Hava Tasimaciligi<br />
Qatar Airways<br />
Queshm Air<br />
Shaheen Air International<br />
Tajik Air<br />
Turkish Airlines<br />
Ukraine International Airlines<br />
Ukrainian Mediterranean Airlines<br />
Airlines who have recently returned to Iran<br />
AirAsia X Air France Thai AirAsia X<br />
Airlines with intention to return or launch services to Iran<br />
Air Astana British Airways KLM Korean Air Thai Airways<br />
OUTLOOK OF SINGAPORE - IRAN AVIATION MARKET<br />
Singapore – Iran Had <strong>Aviation</strong> Ties In The 1970s<br />
Iran is no stranger to Singapore. Singapore Airlines (SIA) used to link the two counties<br />
via twice weekly B707 services to Tehran from July 1977. In lieu of an Air Services<br />
Agreement (ASA) between the countries, the service was made possible with a<br />
temporary permit issued by the Aeronautical Authorities of Iran. It was only in February<br />
1978, following the conclusion of successful air talks between the two countries, that an<br />
ASA was signed between then Senior Minister of State (Communications) Ong Teng<br />
Cheong and M H Moniri of Iran at the Port of Singapore Authority (PSA) Towers.<br />
However, the Iranian Revolution occurred shortly after in 1979 which resulted in the<br />
overthrow of the Pahlavi dynasty under Mohammad Reza Shah Pahlavi Shahanshah<br />
Aryamehr. The leadership was eventually replaced with an Islamic republic under the<br />
Grand Ayatollah Ruhollah Khomeini. CAAS was then informed that the ASA between<br />
Singapore and Iran was nulled as it was signed under the previous leadership which was<br />
no longer in power.<br />
Till date, there is still no ASA between Singapore and Iran. As a result of this limitation,<br />
scheduled flights between the two countries are not possible. However, charters<br />
services are permissible and this could be a possible first step in developing air<br />
connectivity between Iran and Singapore.<br />
Singapore Growing Trade Links With Iran Post-Sanctions<br />
The Singapore Government also recognizes the huge potential that Iran presents<br />
post-sanctions and is quick to re-establish economics and business ties. Before<br />
sanctions were imposed, Singapore’s bilateral trade with Iran amounted to US$6.6<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
billion dollars in 2011. Trade however fell to US$2.6 billion dollars in 2012, before<br />
hitting a record low of about $171 million dollars last year.<br />
Following the heels of United Nation lifting the nuclear-related sanctions on Iran, the<br />
Monetary Authority of Singapore (MAS) scrapped its prohibition on transactions with<br />
Iran on 28 January 2016. This prohibition was imposed on Iran in June 2012 after the<br />
Western governments toughened sanctions against the Islamic Republic over its<br />
nuclear program. It stopped financial institutions in Singapore from “directly or<br />
indirectly entering <strong>into</strong>, continue to participate in, arrange or facilitate the entering<br />
<strong>into</strong> or continued participation in, or any transaction or business relationships” with<br />
Iran.<br />
Further, in less than two months after lifting of the sanctions, Mr S Iswaran, Minister<br />
for Trade and Industry, led a business delegation to Tehran in February 2016. During his<br />
visit, he signed a Bilateral Investment Treaty with Iran’s Minister of Economic Affairs<br />
and Finance Ali Tayyebnia, which will grant investors common investment treaty<br />
protections. These include the right to fair and equitable treatment,<br />
most-favoured-nation treatment, national treatment, protection against<br />
expropriation, and a guarantee of free transfer of capital. As such, Singapore<br />
businesses can now officially enter <strong>into</strong> contracts with Iranian companies.<br />
Singapore As A Tourist Destination For Iranians<br />
Visitor Arrivals from West Asia<br />
80K<br />
United Arab Emirates<br />
70K<br />
60K<br />
50K<br />
40K<br />
Other Countries in West Asia<br />
30K<br />
20K<br />
10K<br />
Saudi Arabia<br />
Israel<br />
Iran<br />
Kuwait<br />
0K<br />
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br />
Source: Singapore Tourism Board<br />
Visitor Arrivals (VA) from Iran have shown promising potential over the past 10 years.<br />
Iran was Singapore’s 2nd largest West Asia tourist market from 2008 to 2011 despite<br />
the lack of a direct air link between Singapore and Iran. Iranian VA has corresponded<br />
closely with air capacity changes between Kuala Lumpur and Iran. This is because<br />
Iranian visitors typically visit both Kuala Lumpur and Singapore in a single trip and a<br />
majority of Iranian visitors crosses over to Singapore by land. Iranians require visa to<br />
enter Singapore. According to anecdotal feedback, Iranians will typically apply for the<br />
Singapore visa (a) before their travel by submitting their application to an Iran travel<br />
7
A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
agent who will work with a Singapore partner to process the visas or (b) by submitting<br />
their application to the Singapore Embassy in Kuala Lumpur while holidaying in Kuala<br />
Lumpur. Iranians continue to visit Singapore even with these entry hurdles. Given the<br />
strong interest by Iranians to visit Singapore, a direct air link between Iran and<br />
Singapore will be greatly beneficial in stimulating more traffic between the two<br />
countries.<br />
Profile of an Iranian Leisure Passenger to Singapore<br />
Based on feedback from Iranian travel trade, the Iranian public is familiar with<br />
Singapore as a tourist destination which is bundled as a two-city itinerary with Kuala<br />
Lumpur. Iranians have a positive impression of Singapore and we are best known for<br />
our shopping and varied entertainment options such as night life and Universal<br />
Studios. Iranians typically spend approximately S$1200 per trip . While travel agents<br />
highlight that entry visa requirements, lack of direct flight option and high prices in<br />
Singapore may deter some Iranian tourists, they are overall positive that Singapore<br />
remains very attractive as a destination. Travel agents are confident of selling<br />
Singapore therefore they are supportive of establishing an air link to Singapore (either<br />
charters or schedule) so that Iranian visitors can have easier access.<br />
Changi: Iran’s Gateway To Asia Pacific<br />
Overview of Iran’s Current Air Connectivity with the World<br />
Area of Opportunity for Changi<br />
While Iran traditionally had a denser connectivity to Europe and the Middle East, the<br />
country has limited direct connectivity to Asia Pacific. For years, Iran Air and Mahan Air<br />
were the only choices for passengers to access Asia Pacific via KUL and BKK. Even then,<br />
accessibility to Asia Pacific is poor as Iran Air and Mahan Air are unable to secure<br />
interline partnerships with other carriers due to the sanctions and the exclusion from<br />
IATA. Thus with the lifting of sanctions, there lies an opportunity for Changi to become<br />
1<br />
Source: Singapore Tourism Board<br />
8
A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
a preferred transfer hub for Iranians looking to access the key markets of Thailand,<br />
Malaysia, China, Japan, South Korea, Indonesia and Australia.<br />
Having said that, Singapore and Iran government will need to first commence air talks<br />
to formalize a bilateral ASA before scheduled flights and direct air links can be<br />
established between Iran and Singapore.<br />
CAG Efforts In Iran And Moving Forward<br />
With the lifting of UN nuclear-related sanctions on Iran, CAG kicked off our first foray<br />
<strong>into</strong> the Iran market with a joint CAG-STB delegation at the inaugural CAPA Iran<br />
<strong>Aviation</strong> Summit held in Tehran from 24 – 25 January 2016. It was the first major<br />
international aviation summit to be held in Iran and was attended by approximately<br />
400 delegates from 35 countries and media. CAG and STB also conducted joint<br />
courtesy calls on Iranian travel agents to gather feedback on the Iran travel landscape<br />
and how Singapore can be better positioned to attract Iranian visitors.<br />
Following the conference, CAG continued to engage Civil <strong>Aviation</strong> Authority of<br />
Singapore (CAAS) to understand the bilateral ASA between the two countries.<br />
Concurrently, CAG also conducted joint consultations with multiple agencies across<br />
Singapore such as the Singapore Business Federation (SBF), Singapore Tourism Board<br />
(STB) and SIA who are all equally supportive of an air link with Iran. With Iran’s limited<br />
connectivity to the Far East, therein lies a large opportunity for SIA to capitalise and<br />
capture transfer traffic from Iran to Asia Pacific via Changi.<br />
Sharing an aligned vision for the Iran market and recognising the keen international<br />
competition to woo Iranian visitors, CAG and other key Singapore stakeholders<br />
responded quickly. We co-organized a Singapore Destination Roadshow on 20 April<br />
2016 in Tehran where a Singapore delegation made up of CAG, STB, SIA and 8 travel<br />
trade representatives spanning across travel agents, hotels and attractions presented<br />
on the various tourism offerings in Singapore. This was the first time in recent years<br />
where a Singapore destination roadshow was held in Tehran. The Iranian travel trade<br />
were also able to find out more about the various offerings through the one-on-one<br />
discussions during the networking segment of the roadshow.<br />
As we continue to work with various stakeholders to prepare the Iran market for an<br />
eventual direct air link, SIA is also working around the limitations of our lack of ASA. SIA<br />
has established interline cooperation on Flydubai’s Tehran-Dubai (DXB) flights and has<br />
also appointed a General Sales Agent (GSA) to start actively pushing for sales on SIA via<br />
DXB. We are also proposing for SIA to mount charters to Tehran during the Iranian New<br />
Year (Noruz) in March 2017. Should the Iranian airlines be able to take delivery of new<br />
aircraft from Airbus and Boeing, AD will also be engaging the Iranian carriers within the<br />
limits of the existing sanctions.<br />
With a population of 80 million people, coupled with the easing of nuclear-related<br />
sanctions, Iran is a fast developing market which CAG is keen to establish an air link<br />
with. CAG will continue to engage the various stakeholders and parties to grow the<br />
market until a time when our policies will permit an air link between Iran and<br />
Singapore.<br />
*****<br />
9
A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
ANNEX<br />
Singapore Delegation at the inaugural CAPA Iran <strong>Aviation</strong> Summit (from left to right):<br />
Lim Ching Kiat (CAG Senior Vice President <strong>Market</strong> Development), Chang Chee Pey (STB Executive Director), Pang<br />
Yee Huat (CAG Manager Airline Development), Mohd Firhan (STB Centre Director Middle East & Africa)<br />
The Alborz Mountain range provides a stunning backdrop for visitors to Tehran and visitors can access the ski<br />
resorts located in the mountains which is only 45 minutes drive from the city<br />
Decorative murals are a common sight around Tehran<br />
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A SNEAK PEEK INTO IRAN’S AVIATION MARKET<br />
Well maintained streets support the movement of vehicles throughout the city<br />
Well designed and modern offices in Tehran: Flydubai’s sales office<br />
Arrival Hall of Imam Khomeini International Airport (IKA)<br />
11