The Relationship Between Ticket Price Liberalization and Rising Airfares in Iran

The liberalization of domestic flight ticket prices has been announced for implementation by the Civil Aviation Organization, while officials do not expect a price increase. However, airlines are seeking to improve their economic conditions by taking advantage of this situation. According to the Fifth Development Plan, ticket price liberalization should have been implemented at the beginning of 2013, but it was not executed for various reasons. On November 6, 2012, ticket prices for domestic flights increased by 60 to 70 percent depending on the distance. Following this unprecedented jump and the shock to the country's air transport sector, Mahmoud Rasouli Nejad, the then CEO of Airports Company, reported a 20 percent decrease in passengers and flights. This event led experts to justify the lack of market demand as a reason for not implementing the ticket price liberalization law on schedule. However, this law remained dormant for only two years. Despite the maximum 70 percent increase in ticket prices, airline owners were still dissatisfied with low prices and lack of profit in this business. They had requested a 100 percent increase in ticket prices, which was not approved. In June 2014, ticket prices were increased by another 30 percent. Despite all these increases, passengers did not witness any change in flight quality. On December 9, 2015, the liberalization of flight ticket prices was finally announced for implementation. According to the issued guidelines, ticket prices for all routes leading to Kish, Qeshm, and oil city airports, as well as routes with at least three active airlines or short routes with easy access to alternative transportation, have been liberalized. With these definitions, 170 domestic routes, which account for 66 percent of all flight routes in Iran, are subject to this law. Among these, 26 routes end in Kish and Qeshm. If this law leads to an increase in ticket prices, many Iranians who cannot afford to travel abroad and consider a few days stay in Kish as their most luxurious trip will be deprived of this opportunity. Apart from these routes, ticket prices for 87 other routes will still be determined by regulation, which the Ministry of Roads considers 'supportive.' One significant aspect of the ticket price liberalization guidelines is the absence of a ceiling for determining ticket prices. The question is; will airlines, which have always claimed their income does not cover their expenses, increase prices in the absence of legal constraints? The Deputy of Aviation and International Affairs of the Civil Aviation Organization has answered this question negatively. Mohammad Khodakarami told Mehr News Agency: 'We do not anticipate a price increase after liberalization except during specific peak travel times.' Morteza Asadi Samani, the Secretary of the Airline Companies Association, also believes that prices will not rise. He stated to Fars News Agency: 'This does not necessarily happen; with the implementation of this law on many routes, on certain days and hours, prices may even decrease compared to regulated rates.' By visiting the websites of Iranian airlines and selecting routes with liberalized ticket prices, it is observed that prices remain completely uniform for all days and flight hours until the end of March. On some of the larger airline websites, there is no option to book tickets for the Nowruz holidays, and no decision has yet been made regarding pricing for that peak travel time. Additionally, it should be noted that Asadi Samani is the secretary of an association that has always requested ticket price increases. Airlines can, under conditions of freely determined ticket prices without restrictions on minimum and maximum prices, increase demand through price reductions while competing with other airlines to attract more passengers and meet their financial needs. On the other hand, Abbas Akhoundi, the Minister of Roads and Urban Development, in stating one of the reasons for implementing the law under current conditions, implicitly confirmed the low quality of airline services, saying: 'When airlines are asked why service levels are low, they say ticket prices are imposed on us. Gradually, we want to ensure that both the service level of airlines increases, their debts are paid, and new investments occur in the aviation industry, because in the post-JCPOA era, if we want to buy new aircraft, airlines must be able to finance the purchase in a competitive market.' According to Akhoundi's statements, ticket price liberalization should be profitable for airlines, solving all their problems through this means. This implies that current ticket prices are still insufficient for airlines. Therefore, we should expect an increase in ticket prices, especially during peak times like the upcoming Nowruz holidays, an event that could lead to a black market during these times on the 170 announced routes. According to Article 3, Clause 2 of the liberalization guidelines, ticket prices for supportive routes will be determined and announced by the Civil Aviation Organization for one year. After this one-year period, these routes will also be subject to liberalization at the discretion of the Civil Aviation Organization. The reason for this is the deprivation or, as Iranian government officials say, the 'less privileged' status of areas leading to the declared supportive routes. Khodakarami, regarding whether airlines operating on supportive routes will receive support, told Mehr: 'To allocate subsidies to these companies, all relevant agencies must participate, so we currently have no plan in this regard.' The Iranian Minister of Roads states that ticket prices have been liberalized to improve quality; should those traveling between deprived routes still be deprived of flight quality?