Iranian airlines face turbulent times

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Sky-rocketing fuel and ticket prices, a drop in passenger traffic and foreign currency shortages, all resulting from global sanctions, have forced Iran’s aviation sector into turbulent times.

Aviation experts believe that some airlines in the Islamic republic will fail to weather these stormy days and be forced to even shut down.

“It is likely that some small airlines will be out of business due to rises in fuel prices,” Hamid Reza Pahlevani, head of Iran’s Civil Aviation Organization, was quoted as saying by the Iranian media this week.

The state-owned National Iranian Oil Refining and Distribution Company (NIORDC), apparently facing financial difficulties like many other firms, tripled the price of jet fuel in October, making matters worse for domestic airlines.

Iranian media reports that the price of jet fuel for international flights has soared to 21,000 rials ($0.75) from 7,000 rials ($0.25) per liter, while domestic flights now have to cough up 7,000 rials per liter, up by 75 percent.

They say the price hike is driven by a plan to reduce the gap between Iran, where fuel is subsidized, and Gulf Arab states.

The price increase is also a result of high inflation, officially estimated at 25 percent, and the plunging value of the rial - a direct result of Western sanctions imposed on Tehran to halt its suspicious nuclear program.

Oil and banking embargoes by the United States and the European Union have also led to a shortage of foreign currency in Iran. Adding further pressure is the doubling of airport taxes following the lifting of subsidies.

With companies losing their edge in buying foreign currency since the end of 2012, the cost of buying equipment and maintenance has also doubled.

The result is that airlines have increased fare prices by 70 percent on domestic flights and 90 percent on international flights, leading to a 25 percent drop in passenger traffic, said airlines association chief Abdolreza Mousavi.

“The income of companies dropped by 15 percent since August,” Mousavi said, adding that some carriers are “on the verge of bankruptcy... due to the collapsing rial, fuel hikes, and inaccessible foreign exchange.”

“They do not have money to pay their debt.”

In January, the planes of domestic airlines, Mahan Air and Aseman, were grounded for a few hours by NIORDC which refused to refuel them because it said they were behind on their payments.

The state-owned jet fuel supplier now demands cash up front from all airline companies, media reports say.

Iran’s deputy oil minister, Ali Reza Zeighami, has put the pending payments from such airline companies at around 7,500 billion rials ($225 million).

The turmoil in the sector has led Austrian Airlines to stop flying while Dutch carrier KLM said it would cease operations from April.

European carriers like Lufthansa, Alitalia, Turkish and Aeroflot still land in Iran, however.

Despite these financial difficulties, Iranian travel agencies have released large and colourful advertisements in mass-selling dailies, offering overseas trips ahead of the country’s New Year, Nowrouz, observed on March 21.

The aviation crisis has also ruffled the nation’s political class critical of the government’s subsidy-easing policy.

“By increasing the price we will have achieved in one week what the U.S. have sought unsuccessfully for 30 years - to ground Iran’s aviation industry,” the conservative Jomhuri Eslami newspaper quoted an unnamed source as saying.

Washington has maintained an embargo on new plane and spare part purchases by Iran since the 1979 Islamic revolution, a strategy that has regularly created obstacles in the smooth functioning of the sector.

“Most of the country’s planes are worn out and their fuel consumption is twice or three times higher than the fleet of other countries,” the source added.

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