Context

1- Executive summary
2- Introduction
2-1 Introduction of low cost airlines

2-2 Iran Air

2-3 Iran Air Tours

3- PEST analysis

3-1 Political factors

3-2 Economical factors

3-3 Social factor

3-4 Technical factors

4- Competitive analysis
4-1 The threat of new entrance

4-2 The threat of substitute

4-3 Bargaining power of supplier

4-4 Bargaining power of buyer

4-5 Rivalry among existing firms

5- SWOT analyzing

6- Mission and Current strategy

7- Strategic propose
7-1 Backward integration

7-2 Privatize strategy

7-3 Market penetration

7-4 Concentric Diversification

7-5 Reengineering strategy

7-6 Strategic alliance

8- Conclusion
9- References

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 1-EXECUTIVE SUMMARY

There are many low cost airlines like EASYJET, AIRASIA, TIGER and JETSTAR
around the globe providing budget travelling to their passenger. Among the airlines IRAN
AIRTOUR can consider to be one of budget airlines even though this airline is not well
known among others. In this report it tried to discuss this airline despite of lack of
information about it in English rather than discussing what it discussed in many other reports.
Here base on the local information we try to introduce it and analyze this old but successful
airline.

In this report it tries to analyze the methods leading IRAN AIRTOUR to success. Here by
employing analysis such as PEST, SWOT and competitiveness and discussing the affects of
political and economical factors, social and technical aspect tries to show the key idea of
IRAN AIRTOUR survival in this competitive business. Here shows the threats against this
company such as new entrance threat and threat of substitute.

Furthermore Before starting the essay about strategic analysis at one of the budget air
lines it is necessary to define what is the budget air line or low-cost airline and explain very
shortly IRAN AIRTOUR for more familiarity.

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 2-INTRODUCTION

2-1 Introduction of low cost airlines

Historically the low-cost carrier originated in the United States before spreading
to Europe in the early 1990s and subsequently to much of the rest of the world. The low-cost
airline is a new experience in the last decade. It is called some air lines that have low fare.
They are eliminating most of the non essential services in but instead pay more attention on
other subjects including single passenger class, simple fare program, single type of aircraft,
point to point flight without transfers, flying to less heavy traffic airport, short flight and fast
turnaround times. Indeed, the budget airline is built on simple factor and low operating cost.

The way of the declining the cost is not same among different airline low-cost. It means,
Not every low-cost carrier implements all of the above points (for example, some try to have
a simple fare program such as charging one-way ticket half that of round –trips while other
try to have a unreserved seating program to encourage passengers to board early and
quickly). In fact, the low-cost airlines related to their goals and programs offer excellent
opportunities for travel in the world at lower cost.

2-2 Iran Air

Iran Air is the flag carrier airline of Iran, operating services to 20 scheduled and 5 charter
destinations. The cargo fleet operates services to 35 international and 25 domestic
destinations. On 24 February 1962, Iranian Airways and PAS were merged to form the Iran
National Airlines Corporation, known as Iran Air.

By the late 1970s, Iran Air was the fastest growing airline in the world and one of the most
profitable. By 1976, Iran Air was ranked second only to Qantas, as the world’s safest airline,
having been accident free for at least ten consecutive years. Although both airlines were
accident free, Iran Air came second only because of fewer operational hours flown compared
to Qantas. Prior to this ranking, a fatal accident occurred on 25 December 1952, in which 27
of the 29 passengers on board perished, when their Douglas DC-3 crashed on landing. In the
wake of the Iranian Revolution in February 1979, Iran Air began to reorganize its
international operations, discontinuing service to a range of foreign destinations. The airline
is wholly owned by the Government of Iran and has 7,500 employees.

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2-3 Iran Air Tours

Iran Air Tours is a low cost airline, based at the Mashhad International Airport (MHD)
and is a subsidiary of Iran Air. Soviet-designed Tu-154M jets are the backbone of this airline,
although Iran Air Tours has acquired a number of Airbus A300B4 and MD-83 aircraft on
lease and in hybrid livery from Turkey, increasing its flights to domestic cities
like Mashhad, Isfahan and Ahvaz.

Iran Air Tours was established in 1973 by Iran Air and initiated scheduled operations in
1990, taking over the bulk of the domestic services, formerly operated by Iran Air. Iran Air
Tours has been responsible for the build-up of an extensive route network, focused on the
northeastern Iranian city of Mashhad, home to the Imam Reza shrine, one of the holiest
shrines of the Muslims.

Reservations for Iran Air Tours flights can be made via the Iran Air system, which is the
only widely available airline reservations system in Iran. The carrier also operates charter
flights. Their tickets can often be booked through the Iran Air system, which is very useful,
being the only widely available (including abroad) airlines reservations system in Iran. They
fly only on major domestic routes as well as some Tehran-avoiding point-to-point flights,
which can prove very helpful, for example, Mashhad-Shiraz. Also Iran Air Tour operates
scheduled international services in the Middle East. Iran Air Tours fleet consists of the 2
Airbus A300-B4, 11 Tupolev Tu-154M, Antonov An-140 aircraft.

The HESA IrAn-140 or Iran-140 is a short-range twin-turboprop airliner based on

the Antonov An-140 and built under license by HESA of Iran. The Iran-140 is able to seat 52
passengers, land on a dirt airstrip and fly almost 3,000 km (1,865 miles) before refueling. It
can be configured to carry passengers, cargo, or a combination of the two.

Iran's own poor safety regulations and mismanagement on behalf of the Iran civil aviation
authorities has also been a known factor to blame. This has resulted in a series of ongoing
disasters and incidents. Also recent news reports by Press TV claim that the Iranian
government plans to privatize Iran Air with its subsidy carrier Iran Air Tours along with
the Iran Air Hotel Group.

3- PEST ANALIZING

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 In this section we analyze the impact of external factors on low-cost airlines and as general
airlines industry with focus on IRAN AIRTOUR. Every organization requires defining their
mission statement and objective via appropriate planning to prepare for long term changes to
survive. For this planning it requires to consider 4 main external factors including political,
economical, social and technological affects on the organization.

In analyzing the macro-environment, it is important to identify the factors that might in

turn affect a number of vital variables that are likely to influence the organization’s supply
and demand levels and its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993)

3-1 Political factors

Political factors can consider having great influence on airlines business. Relation of
business home country with other countries, wars sanctions are few examples of these affects.
These can affect the business directly or indirectly. For example recent Middle East war
cause fast increase of fuel price which effect airlines directly and immigration can be
considered as indirect affect due to increase on trip demands.

1- After the start of the Iran–Iraq War in September 1980, Iran Air's domestic and
international operations were often subject to cancellation and irregularity, in line with the
wartime situation. This continued until August 1988, when a cease-fire agreement took
effect. Right from the start of the Iran–Iraq War, Abadan, the gateway to Iran's oil-
producing region, lost its entire air links, because the airport had to be closed.

2- In the wake of the growing tension, between the U.S. and Iranian governments, over
Iran's nuclear program, the plan to supply Boeing spare parts or aircraft, to upgrade the
aging fleet of Iran Air, was blocked by the USA and members of the EU. However a new
agreement between Iran and the United States at the end of 2006 has changed that and
allowed an overhaul of Iran Air's fleet.

3- High statistics of air crash appeared after sanctions by using the Russian aircraft and old
aircraft in Iran for example the air crashes of Iran Air Tours ended in more than 200 killed
passengers.

3-2 Economical factors

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 Crises financial that end in economic recession or inflector are two main concerns in airline
industry because it impact directly on demand of trip and cost of flight. Changing of
legislation governments policies or revise on taxes that they get charged in different countries
for landing or employee taxation and fuel taxation. Exchange rates of employee payment that
impact directly on cost of flight. And finally rate of interest that airline can meet in long time.
Increasing world oil prices that end in rising fuel cost and flight cost.

3-3 Social factor

For impact of changing the habits or initiate some new habits, behavior and lifestyle of
passengers, airlines should have predict them and decide how to cover these changing.
Change the belief or society condition or changing religion in the long term again end in to
have a flexibility airline. Change in demographic and population and demand of immigration
are other society factors in airline industry.

3-4 Technical factors

Technology improving rapidly every day which affecting industries to grow faster while
providing better services to their customers. Air lines consider gaining most impact from this
growth. In this competitor business the success belong to one who can access to cheaper and
more reliable technology. Designing better plane with more durable components which can
carry more passengers could be the optimum goal for providing better and cheaper service to
customer. In this regard an advance R&D group is fundamental requirement for this growing
business.
As an example for IRAN AIR, the local companies manage to develop many required parts
of plane locally which reduce the cost of importing them from developed country. Beside the
positive effect of technology on air lines at the same time technology could cause against
them. In past few years by introducing video conferencing and growth this technology among
business owner it causes reduction in IRAN AIRTOUR passengers.

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 4-Competitive analysis

The headings of PEST are a framework for reviewing a situation, and can in addition to
SWOT and Porter’s Five Forces models, be applied by companies to review a strategic
directions, including marketing proposition. In order to analyze the low-cost airline industry
in details, it is use full to start by porters 5 competitive forces. Michael porter 5 forces
showed a wide competitive analysis that is except of current competitive, explain other threat
including new entrance, substitute, buyer and supplier.

4-1 The threat of new entrance:

Although getting the permission for establish and founding the new domestic entrance is
possible for new comers but some considerable problem cause new business effortless. There
are loyalty, brand image, capital requirement and political condition of Iran. Currently the
sanctions include a total embargo on dealings with Iran by U.S. citizens, threatening the
world's oil and gas companies against investment in Iran, and a ban on selling aircraft and
repair parts to Iranian aviation companies cause reducing the possibility of new entrance.

4-2 The threat of substitute:

The main threat in this portion is other type of transport like train or car. In domestic
condition the main destination of IRAN AIRTOUR is holy shrine Mashhad that is far from
other large city of Iran. On the other hand in this society people like to travel by car. Train
exists from Isfahan and Tehran (two major cities) to Mashhad but whereas expansion of the
country train network is not completed.
On international route distances are usually too great for car and train and again we
couldn’t see suitable train network. Iran just has train connection from west to Turkey and
east to Pakistan and this way was built to connect Europe to East Asia. At the moment the
numbers of passengers In terms of volume of short international destination are most in Saudi
Arabia (Mecca-Jadeh-Madineh), United Arabia, Iraq and Turkey. Also Persian Gulf on the
south and Caspian Sea on the north created the condition to passenger that travel by aircraft.
Whole the threat of substitute is low.

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4-3 Bargaining power of supplier

The main suppliers of this industry are fuel supplier and aircraft manufactures. In the case
of fuel supplier Although Iran’s government has some discount in price of fuel but this price
is directly related to cost of oil. In another case there are two main manufactured in the world
that have loyalty and best quality. These are Boeing and Airbus. But according to mention of
sanction earlier IRAN AIRTOUR couldn’t buy aircraft form them directly, also it couldn’t
buy the aircraft younger than 10 years old of Boeing and Airbus products through other
airways. It means IRAN AIRTOUR’s has two choices for buying the aircraft. Either buys the
old aircraft from other airways or finds the other manufactures to supplying. However
bargaining power of suppliers is high.

4-4 Bargaining power of buyer

Buyer power within the airline industry is related to the low cost market. For Clarity of the
subject first it is required to divide customer into two segments, 1- travel for journey and 2-
travel for work. The first segment rather desires to find the best tour (including flight, hotel,
meat and transportation in destination town). IRAN AIRTOUR that is founded by this
mission hasn’t got any problem in this group. Second part try to find the best flight not tour,
for this group money is not important whereas the system of administration on based of
government and most of the company are public like IRANAIR. This kind of customer that
they don’t pay money from their pockets, buy the expensive flights. Again I should explain
that according to limitation of buying the aircraft, demand of the flight is very high in as
much as most of the time customers should book the flight weeks earlier.

Furthermore some other parameter should be considered in the long time: customers can
research easily by using the internet and find the best tour or flights. Also standard product is
evaluated by customer. In addition there isn’t any encouragement in this company for
increasing the loyalty. At whole bargaining power of buyer is low.

4-5 Rivalry among existing firms

CASPIAN AIRLINE, SAHA AIRLINE and KISH AIR are competitors of IRAN AIR
TOURS in the Iran. TABAN AIR might become competitor. All of them are competitors in
low cost airline. But IRAN AIR and MAHAN AIR carriers out of the Iran are competitors as
well but on lower scale as they target different market segment.

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 5-SWOT analyzing

Now after analyzing the IRAN AIRTOUR by porter 5 forces and pest, I want to gather this
information so briefly in SWOT model as the overall findings. These are the combined result
of the industry in Iran and the company.

Strengths

Low operating cost- Having the customer all of the year - Financial successful in scale of
its goals – share it’s e-business by IRAN AIR e- booking - getting the discount of fuel from
government – Recognizable as a branch of IRANAIR - serve the meet on the flight

Weaknesses

Obsolete facilities – missing some key skills and competences - too narrow international
destination – limitation by supplier –not innovative and flexible – weak international
advertisement- low flight quality- low safety

Opportunities

Extend low cost Industry – serve additional customer – diversify international destination –
vertical integration – connecting west to east by geographical Iran’s position

Threats

Fleet expansion – aircraft maintenance – training and development – slower market growth
in this country – changing buyer needs - cut on business traveling as a result of common
using of technology – competition likely to intensify – bankrupting by penetration of foreign
airline via lower price and better quality

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 6-Mission and Current strategy

Mission of Iran air tour is built on base of pay more attention on tourism industry by low
cost flight. Regard as this mission its current strategy is “focus strategy”. By this strategy this
airline concentrates on a select few target markets. It is also called a segmentation strategy. It
is hoped that by focusing efforts on provides short-haul point-to-point flights in concentration
of tourist of holly city and tailoring its marketing mix to these specialized markets, it can
better meet the needs of that target market.

7-Strategic propose

7.1 Backward integration:

The largest and main problem of Iran Air Tour is supplier, if it can’t find the best
strategy indeed we will see it dive to the bankrupting. It means for solving this problem
we propose backward integration. Iran Air Tours that is a consumer of aircraft should
acquire its suppliers, or sets up its own facilities to ensure a more reliable or cost-
effective supply of inputs. We know the problem of created according to sanction but the
aim of supplier is third party or other qualifies manufactures that are not in sanction like
Fokker aircraft.

7.2 Privatize strategy:

Privatize strategy in this case is so important for increasing the flexibility and
productivity. This is a good suggestion that help the Iran Air Tours to have motivation by
shareholder to succeed the goals of company. It means more flexibility, innovation,
efficiency, yield and abandon of government legislation.

7.3 Market penetration:

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 It means increasing market share of an existing tours and flights through strategies such
as extensive advertising, lower prices, or volume discounts. We know there is a good
capacity to extend the foreign flights for example to initiate and arrange the flight to Iraq
after peace.

7.4 Concentric diversification:

Adding related new products in Iran Air Tour low cost flight. We know all of the flights
of this airline have a free meal during the flight. Air Tours can adding some flight without
free meal like most of the low cost airlines in the world or give these services on cash
during the flight with more diversity food. This is the new area that it isn’t used in Iranian
airlines. On the other hands it is help Air Tours to decrease their cost and drive to market
leader ship. The key is to consider, are people flying over driving for short destinations
for luxury, multiple seating, meals, drinks, etc? The answer is, no. speed is only one
reason that makes people to fly over driving. People fly to save time. But it is versus of
Air Tours mission that concentrate on tours. For this reason we offer diversity in flights of
Air Tour and this is a perspective for long time.

7.5 Reengineering strategy:

It means Increasing the quality and safety of aircraft to show that this air line is an
excellence low cost airlines in domestic market unlike of past. We know the statistics
show a lot of air crash among Iranian airlines in the last decade as a result of this reality
in addition of back ward integration, we recommend Iran Air Tours enhance their aircraft
quality by more training and totally review the quality and safety strategy in its air line.

7.6 Strategic alliance:

Agreement for cooperation among Air Tour and a foreign air lines (that interest to
acquisition by using the passenger capacity in this country) to work together toward
common objectives. Unlike in a joint venture, firms in a strategic alliance do not form a
new entity to further their aims but collaborate while remaining apart and distinct. This
strategy can be same with backward integration for Iran Air Tours. Also Air Tour
responds to new entrants by this strategy to attempt to drive the entrant out of market.

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 1-Conclusion

Iran Air Tour has got appropriate situation between low cost airlines in Iran and has got
itself customers in international flights. But it doesn’t mean that Iran Air Tours will be a
successful company in the future because by changing the political situation and other threats
that explained earlier stability of its will be examined. Indeed, if Iran Air Tours doesn’t find
the best strategy for preventing future threats it will go to bankrupting, despite many small
business will go bankrupt unless interest rate fall.

On the other hands Iran Air Tours should more focus on ensuring a competitive cost
structure and it should be main business strategy. Besides, the choosing of excellent
marketing strategy, it should consider above implementation strategies. We know middle east
countries are raising in aviation industry and have attractive conditions for the air
transportation industry as a this mention Iran Air Tours should pay more attention to abroad
flight as same as domestic flight by using above defined strategies. However, Iran Air Tour is
likely to face some other challenges in the future that it should predict and control them for
stability.

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 2-References

1- www.iranair.com
2- www.iranair.com/site/858/default.aspx
3- en.wikipedia.org/wiki/Iran_Ai
4- www.iranairtours.com
5- www.iranchamber.com/.../shootingdown_iranair_flight655.php
6- en.wikipedia.org/wiki/Iran_Air_Tours
7- www.iranair.it/english/profile/iran-air-tours-en.shtml
8- http://www.iranair.nl/framereservation.html
9- http://www.iranair.co.uk/
10-http://flights.idealo.co.uk/airline/Iran-Air-IR/
11-http://www.irantravel.biz/travel/airfares/index.php
12-http://aviation-safety.net/database/operator/airline.php?var=5961
13-http://www.aerotransport.org/php/go.php?
query=operator&luck=1&where=100009
14-http://aviation-safety.net/database/operator/airline.php?var=5961
15-https://www.highbeam.com/reg/reg1.aspx?origurl=/doc/1P2-
13422186.html&full=yes
16-http://wapedia.mobi/en/Iran_Air_Tours
17-http://www.airsafe.com/events/airlines/iranair.htm
18-http://www.iloveindia.com/airlines-in-india/international/iran-air.html
19-http://www.airlinemeals.net/meals/Iranairtour.htm
20-http://www.netnative.com/news/02/jan/1099.html
21-http://www.airlinequality.com/Forum/iran.htm
22-http://www.flightglobal.com/articles/2006/06/13/207182/international-
sanctions-force-iran-air-to-ground-its-airbus-a310-fleet-but-restrictions-may-
be.html
23-http://www.highbeam.com/doc/1G1-79438322.html
24-http://en.wikipedia.org/wiki/Sanctions_against_Iran
25-http://en.wikipedia.org/wiki/Airlines_of_Iran
26-http://en.wikipedia.org/wiki/IR.AN-140.
27-http://www.airlinequality.com/Airlines/W5.htm

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 28-http://www.skyscanner.net/airline/airline-iranair-ir.html

Considering other company

29-http://sandygarink.tripod.com/papers/AA_SITA.pdf
30-http://en.wikipedia.org/wiki/List_of_low-cost_airlines
31-http://www.tcd.ie/Economics/SER/archive/2003/Ryanair.pdf
32-http://www.scribd.com/doc/19675487/Untitled
33-http://kulothunkan.blogspot.com/2008/07/swot-analysis-for-airasia.html
34-http://sandygarink.tripod.com/papers/AA_IA.pdf
35-http://www.slideshare.net/Meeneer/jet-blue
36-http://www.m-travel.com/news/2006/12/jetstar_enhance.html
37-http://www.nottingham.ac.uk/ttri/pdf/2001_2.pdf
38-http://www.ukessays.com/essays/business/swot-analysis-airline.php

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