Airfares Expected to Decline in Iran

EghtesadOnline: Iran's currency market has lost some of its fluctuating fervor in the past few days, leading to hopes that airlines will also bring down their skyrocketing prices, as some have already done so.

News ID: ۷۸۴۱۲۹

10 October 2018

"If foreign currency prices [continue to] come down, plane ticket prices will also certainly come down proportionately," Morteza Dehqan, deputy for aviation operations at Iran's Civil Aviation Organization, told the official news outlet of the Ministry of Roads and Urban Development.

He noted that plane tickets used to be based on open market rates of between 38,000 rials and 40,000 rials for each US dollar last year, but now rates have gone much higher than 100,000 rials.

Iran's ongoing currency crisis of the past few months, spurred by US President Donald Trump's May decision to unilaterally withdraw from Iran's nuclear deal with world powers and exacerbated by structural problems in the economy, has affected aviation companies as well, Financial Tribune reported.

Since a major portion of their expenses, even for local flights, are in foreign currencies, they have had to jack up their prices considerably in recent months to compensate. The currency crisis has in turn brought down people's purchasing power, leading to half-empty flights that threaten the economic viability of airlines.

After hitting an all-time low of 190,000 rials against the US dollar on Sept. 26, the Iranian currency regained some ground. It was first strengthened to 140,000 rials level on the back of an active market interference by the central bank.

It was further boosted to about 120,000 rials over news on Sunday that lawmakers have ratified a counter-terrorism finance bill aimed at completing Iran's Action Plan with the Financial Action Task Force, which would mean less restricted ties with the global community.

Aviation companies have had to purchase their foreign currencies from the open market. When these companies link up with the local Nima system of the central bank that allocates currencies at the Secondary Forex Market rates that are noticeably lower than the open market rates, air ticket prices will decline.

On Sept. 22, Secretary of the Association of Aviation Companies Maqsoud As'adi-Samani announced that two aviation companies managed to obtain their foreign currencies at cheaper Nima rates, while a third is waiting in line.

Due to lower rates in the open market and receiving cheaper rates from Nima, local flight ticket prices have already declined significantly.

On Sept. 25, the Association of Aviation Companies held a meeting, at the end of which it approved ceilings for aviation companies. The firms were obligated to charge customers only up to 10% higher than those ceilings for local flights.

However, as ISNA reported on Sunday, many airlines are charging much less, up to 50% less on certain routes, than the ceilings approved by their association due to a strengthening rial.

Hopefully, they will be able to further bring down their prices, as Iran's currency reaches a degree of stability after months of unrest.