Published in June 2016 issue

With a population of over 80 million inhabitants, a massive order of Airbus aircraft in the pipeline, and an enviable geographic location, the outlook is bright for Iran’s commercial aviation industry. If cards are played correctly, powerful competitors in Turkey, Qatar, and the United Arab Emirates may soon see a shift in which travelers will gravitate heavily towards Iran’s home-grown carriers.

By Rohan Anand

Airline development in the Middle East and Central Asia has always marched to the beat of its own drum, with governments giving regulatory agencies the freedom and flexibility to plan, design, and build enormous airports with near utopian outcomes. Over the past decade, the explosive growth of Turkish Airlines (TK), Emirates (EK), Etihad (EY), and Qatar Airways (QR) has redefined the landscape of global air transport.

Each of these four carriers has adhered to its core values despite doubledigit growth periods, cyclical economic trends in a volatile industry, and even critical backlash from global competitors. Each also represents a bastion of aviation nationalism that reflects the ruling parties within their respective home countries—essentially revisiting the designation of being true ‘flag carriers’. While a simple concept, it has eluded the beleaguered carriers in Europe, Asia, Africa, and the Americas.

The world now needs to pay attention to another potential rising star. Iran’s home carriers are not yet household names, and even categorizing them as flag carriers is a stretch. But this nation shares many of the same attributes as Turkey, the United Arab Emirates, and Qatar, and its name evokes a rich imagery of Arabian nights, petroleum, and a bittersweet history.

The Islamic Republic of Iran will be among the hottest nations to watch over the next few years as its regulatory agencies work hard and fast to reverse years of lost fortune caused by the nuclear sanctions that were lifted on January 16, 2016.

Wasting little time, Iran has completed an order from Airbus of more than 100 aircraft that stretch across multiple narrow- and wide-body frames to replace its aging fleet. According to FleetIntel, only 20 of the 280 aircraft belonging to Iranian carriers are less than two decades old, burdening maintenance, repair, and overhaul (MRO) with limited access to spares and parts. Iran’s largest international carriers—Iran Air (IA) and Mahan Air (W5)—are anticipating the day when they can effectively retire Fokkers, Airbus A300s, and 747SPs from their inventories.

The massive Airbus fleet order was finalized in February 2016. It will bring roughly 21 A320ceos, 24 A320neos, 27 A330ceos, 18 A330neos, 16 A350- 1000s, and 12 A380s, presumably all (for now) to Iran Air. It’s noteworthy that Iran Air is acquiring the Airbus A380 in an era in which the aircraft is being faced with sales challenges, with recent order cancellations from Air France (AF) and Malaysia Airlines (MH), as well as bankrupt carriers Transaero (UN) and Skymark (BC). Decisions have not yet been completed for Iran’s remaining carriers, but Boeing purportedly may still be in the picture as a potential supplier. Plans are still very fluid and likely to evolve over the next few months.

Speaking of Air France and Malaysia, both are among the numerous foreign airlines that are scrambling to commence or reinstate scheduled air service to Tehran’s Imam Khomeini International Airport (IKA), hoping to take advantage of this window before Iran’s national carriers expand their international networks. Since January, Lufthansa (LH), KLM (KL), Air France, British Airways (BA), and Korean Air (KE) have resumed, or plan to resume, service from their hubs to Tehran. Meanwhile, Austrian Airlines (OS), Alitalia (AZ), and Aeroflot (SU) have increased frequencies to Tehran, and Malaysia Airlines and Swiss (LH) have also expressed interest in serving Iran. Malaysia Airlines’ expression of interest is significant because it occurs as it is downsizing its long-haul network, indicating that, for the first time, Tehran is rated above cities like Paris, Frankfurt, and Amsterdam, which the Kuala Lumpur-based carrier has recently dropped.

For all intents and purposes, the developments in Iran are resonant of what is occurring in the Western Hemisphere between the US and Cuba. When it became clear that diplomatic relations between the long-estranged countries were heading for a breakthrough in late 2014, the airline industry became involved almost immediately as a key player in building that relationship. Roughly 18 months later, no fewer than eight US carriers, across multiple business models, are vying for a set number of allocated route authorities to fly to Cuban cities.

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But Cuba’s allure pales before the potential in Iran. The Airbus order represents a massive step forward in terms of enriching the relationship between Iran and the West, as the production of Airbus aircraft will undoubtedly stimulate production in countries such as France, Germany, and Britain. While nonstop flights between the US and Tehran are perhaps a way off, the notion that Boeing may eventually ink a deal with Iran Air—or Mahan Air, for that matter—would be a positive sign towards that development.

Iranian carriers, moreover, are entitled to reap the same pride in operating nextgeneration and fuel-efficient aircraft, such as the A350 and A380, as their neighbors in Qatar and the United Arab Emirates have done. The past few years have been painful for them as sanctions by the European Union prevented Iran Air and Mahan Air from receiving refueling services at airports such as Cologne (CGN), Frankfurt (FRA), Gothenburg (GOT), London, Hamburg (HAM), Paris, and Stockholm (ARN) on return flights back to Tehran.

Inbound flights from Tehran would leave for Europe with a full fuel tank to operate the west-bound journey, then make technical one-stops through Eastern European airports such as Minsk (MSQ), Budapest (BUD), Ljubljana (LJU), Belgrade (BEG), and Kiev (KBP) that were not bound by the EU sanctions or that had resisted pressure from the US government to stop doing business with Iran.

Other EU markets served by Iranian carriers, such as Vienna (VIE), Milan (MXP), and Rome (FCO), could be flown round-trip with a single fuel tank due to the shorter distances. Regardless, much like in their other EU operations, Iran Air and Mahan had to restrict cargo and passenger loads, besides inconveniencing their customers, with these difficulties in place. But now is the time for Iran to put its past aviation adversities behind it. As its largest carriers await their fleet deliveries, the focus needs to turn on two major aspects: revamping infrastructure at existing airports, and adhering to global, if not next-generation, standards in commercial airline technology and strategy. France reportedly will help Iran modernize its airports and improve radar and ATC-related services.

The airports facet is critical. Proper decisions will have to be made in advance. Countries like Qatar and Turkey learned the hard way how important it is to invest in proper facilities to support massive aviation growth. The UAE, on the other hand, largely avoided these problems. Like Istanbul, Tehran is a sprawling urban metropolis subject to challenges with regard to accessibility and real estate. Fortunately, Iran and its civil aviation planning team can learn from the experiences of foreign carriers.

Commercial planning will be a bit more nebulous, but this is where Iran can effectively shape its own vision for 2020 and beyond. Iran Air will have to ramp up its workforce to support the capabilities of next-generation aircraft, as the carrier employs a mere 7,000 employees, far too few for a fleet of over 100 planes. More people will be needed throughout the organization for maintenance, repair, crew training, operations, dispatch, and cargo.

It will also be critical for Iranian carriers to revamp distribution and expand their reservations platform to include the online travel agency space—perhaps even folding their long-term plan into IATA’s New Distribution Capability. With the proper technology infrastructure in place, other capabilities can arise, such as codeshare and marketing agreements, strategic partnerships, joint ventures, and, possibly, even alliance membership.

All of these will be areas of opportunity for Iran—not areas of guaranteed promise. The chronicles written by Turkey, Qatar, and the United Arab Emirates took sacrifice, foreign aid, and lots of luck. For Iran, fortunately, there are parallels, and even greater advantages; its massive population base and foreign ties provide a sound basis for long-term aviation growth. Even with the sanctions, Iran’s airlines have maintained a sense of national symbolism that pre-dates the 1979 revolution: Iran was, after all, the first Gulf country to launch nonstop flights from New York to Tehran, and even once planned to place the Concorde on this route.

So, keep your eye on Iran and its rush to rebuild its presence in one of the most contested aviation markets. It looks like the days of falling ticket sales, political unrest, and overexposure to risk are over. It looks like Iran is poised to become the next aviation success story of the early 2020s.