Tuesday, August 31, 2010

Mahan Air: Against all Odds

BY Amir Taheri, Contributing Blogger

As Iran has been a land of surprises over the centuries, its airline industry is no exception. There have been many ups and downs over the years, but to say that the last 30 years have been tough on this industry is an understatement. Both due to internal and external reasons obstacles have been laid in the path of this important industry. Any Western airline CEO has to consider his job easy compared to his or her counterparts in Iran. One airline in Iran has stuck it out over the years and become quite successful in its own innovative business model, that airline is Mahan Air.

The early years

Started as the first private airline in 1991, Mahan's goal was simple, to provide air transport from their hometown of Kerman to the all-important capital city of Tehran. At the time, Iran had come out of the long war with Iraq that ended in 1988. Those long 8 years were especially not easy as they included plane highjacking, the usual dodging of missiles, and of course the infamous shooting down of the Airbus Iran Air in the late 80's by the USS Vincent killing all 290 people. So due to the overall lack of planes many cities were being overlooked by the major airlines at the time, Iran Air (the national airliner) and Iran Aseman Airlines.

Mahan Air quickly moved past its original goal and targeted being the number one airline in Iran. Then came the obstacles. For one, Iranian airlines can't buy American Boeing planes, which were the majority of the fleets bought when the Shah of Iran was the US's greatest ally in the Middle East. The second airliner the European Airbus, was also out of the picture as the US had passed new laws that forbid foreign airplane manufactures from selling planes to Iran that have a percentage of US parts. With the 2 major world manufactures not selling planes to Mahan, they started by leasing Russian Tupolev 154s. These were the workhorse planes of the Soviet Union and similar to the Boeing 757 but had become out dated and not a popular choice for most airlines. Secondly, the Iranian government regulated airline ticket prices and tickets were kept ridiculously low by world standards, whereas in the 1990s a flight from Tehran to Shiraz which, is a 1 hour and 20 minute flight, was selling for 27 dollars. While domestic flights were kept artificially low, International fights were freer to choose higher pricing. This was naturally the more profitable choice for Mahan. A third obstacle was not stepping on Iran Air's toes, which was the largest carrier and providing many state employees a job. Iran Air was barely breaking even by losing money on domestic routes and profiting on international routes to Europe and Asia to break even at the end of the day. So when new player Mahan came in, it was not going to be that easy to eat away at Iran Air's core profit. The national airline was already flying to most European cities where a large Iranian diasporas were using it to visit their families in Iran.

So with domestic routes unprofitable yet undermanned and the international routes bringing Iranians home to visit covered by Iran Air, Mahan set its own direction forward. It targeted what is called the Sixth Freedom Traffic (transiting people from one country to another using Iran as a stop-over) and finding new international routes that Iran Air was not flying to or routes that could accommodate a second Iranian airline to fly to. One problem here was Iran's law of requiring even foreign women to observe Iran's Islamic dress code while on Iranian soil.

Plowing through obstacles

To address the headscarf rule, Mahan turned on overdrive Iran's famous Persian hospitality. As passengers departed the plane for their 2-hour layover, Mahan presented each woman with a silk white scarf to liberally place on their heads. Additionally everyone was given a small gift (chocolates or famous Persian pistachio). Exiting each passenger was guided to the business lounge where they could wait with small snacks or drinks, and given an airport voucher to buy themselves a gift from duty free shops with their 2 hour wait. As of yet, no one has complained of the scarf rule. Secondly to buy new planes, Mahan took advantage of an exception to the rule. Third countries could sell their used US or European planes to Iran as long as it was at least 7 years old. Going on a shopping spree, Mahan bought a range of new planes including mostly wide body planes of Jumbo 747 Boeings, Airbus long range 310s and the popular Airbus 300-600s. Mahan ended up choosing two major airports for its transit of passengers through Iran, Birmingham in the UK and Dusseldorf in Germany. Today it flys Indian expats home to India from the UK and also offers Europeans a transit to Bangkok through Tehran. These routes are now its busiest as are taking Iranian holiday seekers to many locations in Asia including Bangkok, Kuala Lumpur and Europe. It also built its own extensive maintenance hanger where it does major overhauls on its planes. Recently, it has started remodeling its interior cabins using personalized seating provided by a German airline seating company. Future plans include improved in-flight Entertainment and wireless headphones. Also, it was the first Iranian airline to offer business seating on its domestic flights. The industry has been able to convince the government that ticket prices needed to be raised and the government agreed. That same 1 hour 20 minute flight now costs a little over 100 dollars. Mahan has played its part by increasing its domestic coverage to daily and multi-daily fights between Iran's major cities.

Mahan is no Emirates but with all its problems it has managed to become Iran's second largest airline and on its way to surpass Iran Air in passenger traffic. It now has 36 planes (mostly large wide body planes) and more on order. It will be expanding further to more International cities and is also looking into the growing Chinese market. The obstacles haven't gone away, for example the US government working with the UK has even tried seizing some of its jumbo planes that were purchased by third parties and legally sent to Iran. Also, with the latest sanctions by the US, it had to struggle to quickly find new suppliers in Europe for its jet fuel that BP and Shell interpreted to include Iranian airlines stopping over in Europe on their way to Iran. The US kept quiet and didn't mention to BP or Shell that their sanctions target was Iran's domestic auto industry. As sanctions restrict spare parts, Mahan has gone with the unconventional method of buying whole planes and scraping them for parts when unable to buy parts through third parties. Keep an eye out for this airline that would probably give anything to have the problems of airliners anywhere else in the world!

Photo: Mahan Air Promotional Material

Written by Amir Taheri, Contributing Blogger


Anonymous said...

Great post.

Always interesting to see businesses strive in the face of challenges. As an Arab I'm all too painfully aware of the impact of sanctions. The airline industry in particular seems a ridiculous target for sanctions. Stifling economic growth as well as endangering lives.

I guess it all boils down to the fact that unless you play by the west's rules and make commercial peace with Israel (as many Arab gulf states have) you can't develop your economy in a normal way.

I would like to hear more reports on Iranian business success and wish the people in Iran all the best luck with their business ventures in the future.

- Zaki

Amir Taheri said...

Thank you Zaki. You are of course correct. Mahan is also not an exception of an iranian company overcoming hardships so I hope to share more reports in the future. Take care!!

Anonymous said...

Good to hear, Amir!

- Zaki

Anonymous said...

Brilliant article. However Mahan Air suffers from quite a bit of mismanagement as with most domestic Iranian businesses - Look at the 4 grounded B747-400s sitting in IKA for example.

Amir Taheri said...

Anon 5:59, thanks for your note. The case with the 3 boeing 747-400 is interesting one. Those are the ones that the US with the UK government are trying to seize. Therefore they had to ground them as their is a legal case pending. If Mahan were to use them than they could be banned from entering Europe and if they fly them they risk being seized. Lets hope they have this resolved soon!