Issue 9 - A Sneak Peek into Iran's Aviation Market

Air Hub Perspectives
JULY 2016| ISSUE 9
by Pang Yee Huat, Airline Development
A SNEAK PEEK INTO IRAN’S
AVIATION MARKET

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