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by EOS Intelligence EOS Intelligence No Comments

Commercial Drones Poised to Be the Next Disruptive Technology?

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While drones have been around for decades, the commercial use of this technology is a fairly new concept for various businesses. The rise of commercial drones in the recent years triggered high hopes for incorporating such technology in a range of sectors. However, a lot of preparatory work is required for the market to evolve and for the technology to be incorporated in businesses’ operations.

Initially reserved for military use, unmanned autonomous vehicles or drones are now being considered for the commercial marketplace. In recent years, commercial drones have witnessed significant product innovations and are now being utilized in various industries. Equipped with cameras, commercial drones are used for mapping, delivery, inspection, and surveillance. Valued at US$ 609 million in 2014, the market is forecasted to reach US$ 4.8 billion by 2020. These machines now have the potential to transform the traditional business models by including a range of opportunities across various industries including infrastructure, agriculture, insurance, security, etc.

Growth

Infrastructure

An increased usage of commercial drones has been witnessed in the infrastructure industry. Commercial drones are cheaper than manned aircraft and have the ability to gather data more precise and faster than human surveyors. This helps the construction workers to track the work progress with a higher degree of accuracy. Further, drone monitoring of construction sites enables workers to keep a check on material storage and handling, thereby preventing wastage of materials. While the use of commercial drones in the infrastructure industry will not have any effect on employment, it is likely to reduce overtime costs by keeping a track of the construction progress and eliminating rework or fixes.

Agriculture

In agriculture, farmers use commercial drones to reduce their dependence on extra resources required to produce crops. Drones have the ability to survey fields, spray pesticides, and also collect data required in reviewing crops, with data collection being their most promising utility. This saves farmer’s time and money required to evaluate acres of land manually and also helps in getting timely information about the status of their fields to improve crop health. Commercial drones, thus, help overcome a huge challenge in farming, i.e., limited efficiency in monitoring huge areas of land. The use of commercial drones in agriculture is likely to lead to farming becoming data-driven, leading to better productivity and yield.

Transport

Commercial drones are also increasingly used in the transport industry, particularly for the delivery of goods in the e-commerce sector. Retailers such as Amazon and Walmart have been focusing on setting up the infrastructure required for delivering products to customers. Drone delivery is now considered central to Amazon’s long term shipping plan, and is likely to modify the company’s cost structure. The introduction of Amazon Prime Air, Amazon’s drone delivery system, is likely to lower the cost of a same-day small package delivery to US$ 1. In addition, convenience store chain, 7 Eleven, and fast food chain, Domino’s Pizza, recently partnered with Flirtey, a drone delivery company, to initiate the delivery of food to customers. The companies believe that drone deliveries will help them cut down their delivery cost and save traffic time to offer efficient delivery services.

Insurance

The insurance sector is also an early adopter of the drone technology. Commercial drones are being used to record details about a location or building to gather useful information for risks assessment and claims processing. With the ability to view difficult angles, take high resolution photos and videos, and easy portability, commercial drones can enter places such as burned out homes or chemical spills more easily than insurance adjusters, thus, saving insurance adjusters from entering potentially dangerous areas. Drones can also speed up the surveying process and save costs by covering large areas of the property in a short span of time, thereby employing lower number of adjusters. In addition, drones are useful in monitoring areas prone to natural disasters, making it easier for national government working with insurance companies to prepare for catastrophe and prevent damage and casualties. For instance, in January 2016, Aviva PLC, an insurance company, deployed drones to survey flood damage in the UK. The drones were used to provide a macro view of the area and guide the company’s staff on the ground. While it is too early to say whether commercial drones will be able to replace insurance adjusters, they are already used to speed up the inspection process and offer more detailed property data.

Challenges

EOS Perspective

The drone technology has started to a find its home in the commercial sector. Various industries have initiated the adoption of drones with a view to increase efficiency, lower operational costs, speed up several links within the supply chain, and obtain valuable information. In the near future, the commercial drones industry is likely to gain more traction, particularly by large scale industries such as agriculture and infrastructure. This, coupled with the ongoing technological innovations such as better sensor technology, seamless software function, better integration, etc., is likely to boost the commercial demand for such machines.

Having said that, the industry will need to overcome certain regulatory challenges to go beyond the currently nascent stage of development. While on the one hand, the development of the regulatory framework has sparked hopes for industries willing to adopt the drone technology, on the other hand, the stringent rules regarding the usage of such technology are likely to cool down the industries’ enthusiasm to some extent. However, though the initial set of rules is restrictive in nature, it is believed, that the regulations might change once the industries exhibit drones operations in a safely manner. For instance, the rule regarding the weight limit might start accepting waivers in certain categories, thereby prompting the regulators to alter the ruling. While it is clear that in its stage of infancy, the commercial drones industry is expected to face regulatory uncertainty, in the long run, with a possible evolving regulatory regime, the business potential of the commercial drones could be game-changing.

by EOS Intelligence EOS Intelligence No Comments

Uncertain Impact of the 2016 FDI Reforms on the Civil Aviation Sector in India

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Indian aviation industry is aiming high and intends to grow at a fast pace. Studies forecast that India could become world’s third largest aviation market by the end of this decade. In June 2016, the Indian government opened doors to 100% foreign investments in the Indian aviation sector. With an aim to establish one of the most FDI liberal economies across the globe, the government has taken steps to ensure easy and smooth inflow of foreign currency to India. This move has triggered mixed reactions – some raised their eyebrows while others welcomed the change.

With the objective of driving growth in the local aviation market, spurring airport infrastructure improvements, as well as giving the employment sector a push and creating new jobs in the country, the Indian government announced amendments to the FDI policy for the aviation sector. Under the new regulations, 100% FDI is allowed for both greenfield and brownfield projects through the automatic route. Regulations have been updated also in other categories of aviation operations. In Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline Service, though Non-Resident Indians continue to be allowed to invest up to 100% FDI without any approval, foreign investment is capped at 49% under the automatic route and any investment beyond this share must go through the government approval route, however allowing for the possibility of 100% FDI by only non-airline players. This effectively maintains the previous limitation for foreign airlines to bring in only up to 49% of the capital in Indian carriers operating scheduled and non-scheduled air transport services.

1-FDI Reforms In Indian Civil Aviation

Under substantial ownership and effective control, any foreign airline that invests in domestic carriers via non-airline investors, is bound to have an Indian chairman and at least two-thirds of its directors of Indian origin, so that majority of the ownership rights are vested in the hands of Indian nationals. Indian Civil Aviation Ministry say that though the new provisions allow full investment of foreign parties in the national aviation sector, 100% foreign ownership dominated airlines will still not enjoy the freedom to fly internationally. International investors can own full stakes only in domestic airlines but will have to bear the heat of the government procedures and approvals to fly overseas. Though the new changes in the policy give hope to increase the ease of doing business in the country thus increasing FDI inflow, a question still remains why an international carrier would enter the Indian market to operate primarily on the domestic front. Also, owing to heavy debt, high input costs, and rigid competition, most of the domestic players are already registering business losses, so whether a new entrant in this segment would earn profits is rather questionable.

EOS Perspective

Foreign air carriers face various hindrances when planning to enter the Indian civil aviation landscape. The leverage offered currently by the Indian Civil Aviation Ministry allowing 100% foreign direct investment in the sector may look rosy but it comes with fine print, i.e. despite allowing 100% FDI, the regulators still kept several limitations, effectively reducing the attractiveness for foreign players to invest in India.

The relaxation in the FDI norms is likely to attract many overseas carriers to invest in existing airlines that were looking to expand their operations in India. The deteriorating financial condition of domestic players is expected to improve with investment from foreign players.

Improved service standard, professionalism, and adoption of industry best practices are likely to be seen in existing air services within the country. Nevertheless, a doubt still remains whether these amendments in the FDI regulations that aim at boosting the aviation sector will really be fruitful.

by EOS Intelligence EOS Intelligence No Comments

E-mobility in Public Transportation – In the Not-Too-Distant Future

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As various countries across the globe are aiming to reduce their dependency on petroleum and tap into comparatively cheaper sources of energy, policy makers are looking at electro-mobility as a way to address energy supply issue in the future. Electro-mobility or e-mobility refers to the concept of using electricity-driven vehicles (also known as electric vehicles) and hybrid vehicles, in order to reduce the dependency on fuel-driven automobiles, while also reducing carbon emissions. Policy makers are focusing on de-carbonization of public transport which is expected to tackle environmental issues such as air pollution, particularly in densely populated regions. Even though consumers remain skeptical about passenger electric vehicles, electrification of public transport adoption rate is stirring at a much faster pace. Being on the fringe for so long, emission-free electric buses and taxis are finally gaining popularity and are being considered the epitome of sustainable transportation. In addition, the infrastructure to support e-mobility, such as battery-operated vehicles and charging stations, is becoming affordable and easier to adopt across the globe.

The electrification and hybridization of transit buses is anticipated to become a global phenomenon by 2020, backed by lower operation costs, tax subsidiaries, strict emission laws, and cash incentives. Hybrid buses are expected to attain a global penetration rate of 9.7% by 2020, while electric buses are likely to reach 5.7% penetration. Leading global manufacturers of hybrid and electric buses (such as Zhengzhou Yutong Group, BYD, Volvo, Zhongtong Bus, Proterra, etc.) have been working on making these buses more attractive with regards to both capital and operational costs. Constant efforts are being made to lower battery cost and increasing battery life.

Various developed as well as developing countries across the globe have already initiated the adoption of hybrid and electric buses and other public transportation, in order to cut down on fuel consumption and carbon emissions.

CHINA

The electrification of public transport has been gaining popularity in China. The Chinese government has initiated several programs, pilot projects, and R&D activities to replace conventional public transportation vehicles with electric vehicles. In 2015, cars, which had been registered before 2005 and were considered to emit excessive pollutants, were removed from the Chinese roads. The owners of such vehicles received subsidies for the purchase of more environmentally friendly cars. The government has allocated approximately USD 1 trillion for electric buses during 2015-2030, in hopes that this will help in lessening the monetary impact from air pollution by more than USD 22.5 trillion in the same period. Such an investment is likely to make electric buses account for 70% of total buses in China by 2020, marking a huge step forward in government-led electric vehicles market.

With a view to encourage the development of electric taxis, the government announced its Electric Taxi Project in 2010 which aimed at introducing 500,000 electric taxis in Shenzhen by 2015. Despite being a promising initiative, the project showed little success due to the lack of charging stations and vehicles’ long charging time. On the other hand, a similar model introduced in Beijing in 2014 was more successful and fueled the addition of a host of electric taxis in the city, along with the development of EV parking lots and fast charging points. With the effective implementation of this venture, the government decided to kick start the Electric Taxi Project in Shenzhen again in 2015, under which taxi operators were offered cash subsidies, along with a 10-year operating license to replace petrol-driven taxis with electric vehicles.

Despite these initiatives, weak electric vehicle infrastructure is one of the key hurdles the country needs to overcome. The government has noticed this issue and steps are being taken to create a sound charging network across the country. The number of public charging piles in the country grew from around 1,100 units in 2010 to 49,000 units in 2015, representing a CAGR of 113.68%. To meet the charging demand of 5 million electric vehicles by 2020, the government has introduced incentive policies with an aim to build 4.8 million charging piles across China.

UK

UK has shown a fair share of commitment to freeing its cities from the harmful effects of fuel-driven vehicles. Efforts are being made by the island nation to promote sustainable public transportation. Transport for London (TfL) has announced its Ultra Low Emission Zone program to introduce 300 single electric/hydrogen deck buses and 3,000 double deck hybrid buses by 2020. The pilot phase of this project will be initiated in 2016 with the introduction of 51 electric buses across two routes in the city. China-based company Build Your Dreams (BYD), the largest manufacturer of pure electric buses, and UK-based Alexander Dennis Limited (ADL), the fastest growing bus builder, together, will be supplying these 51 buses for GBP19 million (USD 26.86 million).

Further, under the new plans by the London government, all hybrid taxis and buses will be able to switch to electric mode when entering certain polluted zones in the city. A ‘geo-fencing’ technology will be used for this purpose, which will allow vehicles to recognize a highly polluted area and switch to a ‘zero emission’ mode. By 2018, it will be mandatory for all new cabs to be electric/hybrid. Additionally, feasibility studies are being carried out as part of another GBP20 million (USD 28.28 million) government scheme for the introduction of plug-in taxis in various cities. The study focuses on finding solutions to reduce the upfront vehicle cost and develop charging infrastructure for taxis.

The UK’s innovative approach with emphasis on R&D for the promotion of sustainable transportation could potentially be a game-changing movement in its fight for an emission-free country.

INDIA

India is one of the few developing countries that has been paying attention to reducing carbon emission and tackling air pollution caused majorly by transportation. In 2013, the Indian government introduced The National Electric Mobility Plan 2020. The ambitious plan aims to create a paradigm shift in the country’s transportation industry, through a combination of policies intended at introducing 6-7 million electric/hybrid vehicles in the country by 2020. With a total outlay of INR 140 billion (USD 2.1 billion), the plan includes the acquisition of vehicles, development of infrastructure, R&D, etc. Under Phase I of the scheme, pilot projects have been initiated in metro cities, state capitals, and cities of the north eastern states. For instance, in Delhi, the plan intends to convert 150,000 diesel buses into electric buses in the first phase. In 2016, BMC (the Municipal Corporation of Greater Mumbai) announced its plans to convert 25-30 existing diesel buses into electric buses having received a grant of INR 1 billion (USD 1.5 million) for the project. In another project, the central government has sanctioned INR 5 billion (USD 7.5 million) to purchase 25 electric buses to operate in Himachal Pradesh state, especially to be operated between Manali and Rohtang Pass.

The plan also encouraged the promotion of electric three wheelers (e-auto rickshaw or e-tuktuk). Despite having proved to be a successful model in countries such as the UK, the Netherlands, and Italy, this type of vehicle was initially met with skepticism in India. However, over the past six years, it gained popularity and soon the roads in the capital witnessed a surge in the number of e-rickshaws (about 100,000 e-rickshaws by 2014). Various companies such as Bosch India, OK Play, and Kinetic Group have developed indigenous e-rickshaw prototypes with a view to tap into this INR 500 billion (USD 7.49 billion) industry. The Indian government has also shown support and is considering offering motor-vehicle tax exemption and credit on the purchase of e-rickshaws.

Despite the high initial cost of procuring these vehicles and implementing the plan, the absence of carbon emissions, reduction in idle motor energy loss at bus stops, and silent running of the vehicles are some of the strong arguments that could help pave the way in creating a sustainable public transportation system based on e-mobility in urban India.

Penetration of E-Mobility

E-Mobility in Public Transportation Faces a Set of Own Issues
Despite its numerous benefits, e-mobility in the public transportation sector comes with its own share of challenges. While lack of charging infrastructure and high cost of electric buses are the two key roadblocks to the smooth adoption of EVs, the industry faces several other challenges, such as limited funding availability (from states), service levels of EVs not matching up to those of conventional buses, demand charges levied by electricity providers resulting in higher operation cost, and significant impact on electricity grids.

Inadequate charging stations infrastructure is the key problem faced by various countries which are in the process of rolling out electric buses and taxis system that needs to rely on a solid charging infrastructure network to support public electric vehicles. A weak charging infrastructure not only limits the vehicle to short range commutes, but might also postpone the transformational shift to electric vehicles. For instance, Car2Go, Daimler’s electric car sharing rental launched in San Diego, USA in 2011, might switch its fleet from electric to gas due to a weak charging infrastructure available in the region. On an average, about 20% of the fleet remains unavailable due to the lack of electricity required for the car to be driven.

Another aspect that impacts the availability of a robust charging infrastructure especially for e-buses is the unavailability of adequate power source close to existing bus yards. Bringing power to the current yards/parking stations may require additional efforts and costs with regards to excavation, cabling, etc.

In addition, the cost of electric vehicles in the public transportation segment, particularly of electric buses, is considered very high. These buses cost almost 2-3 times more than conventional buses. The initial investment in electric buses seems massive vis-à-vis their diesel counterparts. This could prove to be a major hindrance as countries aiming for a sustainable public transportation system could easily switch from diesel buses to low emission gas buses, which are comparatively cheaper when compared with electric buses. For instance, Australian Tasmania’s public bus company considers the technology behind electric buses ‘too expensive and experimental’. An electric bus costs around USD 1 million, almost twice as much as the diesel-fueled bus. Thus, in order to reduce the environmental impact of diesel-fueled buses, the state is focusing on introducing gas-fueled buses whose prices range between USD 500,000 and USD 670,000 making them much less expensive than electric buses.

The problem of high purchase cost is paired by the issue of financing of electric vehicles, which is another hurdle to the widespread adoption of such buses. While the reduction of transportation CO2 emissions features as an important target for most governments and municipalities, stringent budgets and lack of funding often make these plans harder to achieve. For instance, in January 2016, Ireland-based Dublin Bus was refused funding for the lease of three trial hybrid buses costing EUR 900,000 by the National Transport Authority (NTA), due to lack of availability of funds. The rationale stated by the NTA for the refusal was that adding fewer hybrid buses in place of diesel buses (which are relatively cheaper) will result in lower number of public buses on the street, which in turn will translate into a significant rise in the number of car journeys, consequently leading to greater environmental damage. This Irish example might indicate that the adoptability of electric vehicles can only be successful in countries where the government is willing to make vast long-term commitment towards the purchase of electric vehicles for public use.

The challenges do not end there. While electric buses are considered to be more cost efficient with regards to operations, pure electric buses, in most cases as of now, are not capable of delivering a non-stop 18-hour service cycle that is achievable by most conventional buses, without stepping out of service for recharging their batteries. Moreover, most electric buses are currently not suitable for challenging environments (such as rural or hilly regions), which in turn limits their adoptability, while traditional buses have long been used in a great variety of terrains.

The operating cost advantage of electric buses is further impacted by the frequent application of ‘demand charges’ by electric utilities, especially in case of pilot/trial projects. For instance, in California, the application of demand charges increases the operation cost (which stands at about USD 0.25/mile without any demand charges for electric buses) by about USD 0.24/mile for one electric bus charging overnight and by USD 0.90/mile for one electric bus charging on-route. This significantly impacts the operating cost benefits that make electric buses attractive (the fuel cost per mile for diesel bus is approximately USD 1/mile). However, with the rise in number of electric buses, the demand charges can be spread over a larger number of buses making on-route charging more economically viable. For instance, if the number of electric buses rises to four or eight, the operation cost increase is reduced from USD 0.90 to a mere USD 0.42 per bus or USD 0.29 per bus (respectively) for an on-route recharge. Thus the greater number of buses, the lower the demand charges per bus. To support the deployment of electric buses, it is essential that electric utilities pardon demand charges for plying electric buses till the time the bus operators manage to increase the electric bus numbers to make them economically feasible.

EOS Perspective

While electrification of public transportation is not easy to achieve considering the vast set of challenges faced by the industry, the global market for electric and hybrid buses offers huge growth potential as several leading economies such as the USA, Canada, UK, Germany, France, China, and India are making a conscious effort to switch to electric and hybrid fuel systems for public transportation. Electric buses not only help address rising pollution and environmental concerns but also offer lower operational costs, which is a key driving factor for their growing acceptability. According to experts, all of these advantages of electric buses are likely to spur the industry to grow at a forecast CAGR of 20-27% during the next five years (2016-2020). This is also supported by an ongoing effort by the leading hybrid and electric bus manufacturers, who are working to expand their product portfolio with innovative and cost-effective solutions that suit different countries’ requirements and road conditions. While currently, in real terms, the number of electric buses across the globe seems very limited, the industry is sure to have a bright future.

by EOS Intelligence EOS Intelligence No Comments

New Wings to Fly – Post-Sanction Scenario of Iran’s Aviation Industry

The Nuclear Deal between Iran and the six super powers is seen as a boon for the aging Iran aviation industry. Iran now plans to add 300 new aircraft in the next five years and 500 in the next 10 years by growing the national fleet as well as additional airports and facilities to the country’s existing infrastructure. Although many view this as a tremendous opportunity, there are many hurdles along the way – how does the country plan to tackle them?

On July 14, 2015, Iran and the six super powers (the USA, UK, France, Russia, China, and Germany — collectively known as the P5+1) finalized a Joint Comprehensive Plan of Action (JCPOA). This agreement is meant to ensure that Iran’s nuclear program can only be used for peaceful purposes in return for lifting the sanctions from P5+1 countries. On January 16, 2016, International Atomic Energy Agency (IAEA) announced that Iran met the requirements of the JCPOA and the sanctions were immediately lifted. One of the reliefs for Iran was the ability to conduct business with the EU and US companies across a range of sectors, including aviation-related industries.

The lifting of the sanctions was a relief for the aviation industry of Iran, as the entire in-service fleet of 225 airplanes is in a dire need for repairs and maintenance. Due to import sanctions, much needed machinery and parts have not been available for the airlines to repair and maintain their fleet, while the access to new airplanes was very limited. The average age of Iran’s fleet is 25 years, which is among the oldest in the world. This is also one of the reasons why Iran’s civil aviation has had one of the world’s worst safety records – more than 500 people dead in the past few years in air crashes of various Iranian airlines.

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The lack of access to new machinery and aircraft has affected the growth of the domestic airlines – this includes the flagship carrier, Iran Airways, as well as other top airlines such as Aseman Airlines and Mahan Air. These three airlines hold the maximum in-service fleet and they are likely to also be the first to benefit from any deals made in the aviation sector in the country. And the deals are expected to start pouring in soon. The lifting of sanctions has enabled Iran to seek the possibility of doing businesses with companies such as General Electric (GE), a US-based equipment manufacturer, which has shown interest in investing in Iran to provide commercial aircraft engines, parts, and services, which is likely to be a boon for the local airlines in working towards improving their safety record over time.

Iran has already initiated talks with two leading aerospace equipment manufacturers, US-based Boeing and France-based Airbus, to buy equal amount of airplanes from both companies. As of January 2016, a deal was signed between Airbus and Iran to deliver (although the delivery timeline is still unclear) 118 jetliners worth US$27 billion. Boeing is working out the details with the US Treasury and a contract will go under negotiation once these details are clear. Both companies are motivated to convert the talks into a deal – even though both companies are giants, selling to most airlines around the world, the number of airplanes ordered by a Iran is still going to be a large contract for them.

Iran plans to re-vamp the entire aviation industry, including the purchase of new airplanes and construction of new airports along with refurbishing the existing infrastructure. The new planes are planned to slowly replace the older ones with the ambitious objective for the airlines to have brand new in-service fleet, which would reduce the repairs and maintenance costs over time. Apart from investment in airplanes, Iran also plans to develop five new airports with a total investment of US$8 billion. Iran’s Civil Aviation Organization (CAO) has already outlined two airport projects to be developed with an investment of US$1 billion expected to be completed by 2022, while the rest of the projects are yet to be announced.

The idea is to develop these airports as international corridor and transit hubs by reviving the historical trade route advantage, which Iran had through the Silk Route in ancient times. Iran, back then known as Persia, connected the Western countries to the Eastern ones – it was one of the transit hubs for trade. In current attempts to revive that route, Iran considers two airports, Dubai, UAE and Doha, Qatar, as competitors, due to these airports’ advantage of the same central geographical location connecting the West and the East. Dubai and Qatar have already leveraged their location and facilities by offering transit hubs to many international carriers, which brought good volumes of international traffic into these two countries. This has also led to the development of hospitality and tourism industry in the areas along with business and job opportunities to the local and expat population of UAE and Qatar. These countries have also worked on establishing their flagship airlines – Emirates and Qatar Airways, and both of these airlines are among the top airlines in the world now.

According to Iran officials, both these airports (Dubai and Doha) and their flagship airlines (Emirates and Qatar Airways, respectively) are direct competitors to Iran’s airports and its key airline – Iran Air. Iran can also learn from these two airports’ history in its quest to restore growth in aviation and several associated industries. The development of Dubai airport has been attributed as one of the major turning points to the development of the city, Dubai – the airport was earlier used for transit flights, repairs and/or refueling of the airplanes, gradually increasing the international flights and footfall in the city. This spurred interest of international players in hospitality industry to expand their existing infrastructure in the city, which in turn lead to the development of hospitality and tourism industry in UAE, which was a relevant step UAE took in diversifying its oil-based economy. Currently, Dubai handles passenger traffic of more than 75 million on a yearly basis. Recently it was announced that Dubai will be expanding its airport to accommodate the increasing traffic on its terminals.

Iran would like to draw a similar story for itself and follow Dubai’s footsteps by putting its flagship airline in the global picture and using its airports as transit hubs. The major challenge in Iran’s case is that it has missed out on this opportunity by at least a decade, if not more. Dubai and Doha already have the infrastructure, policies and rules in place to accommodate growing traffic, along with businesses looking to invest or expand in the city or the country. Iran still needs to develop or update the basic infrastructure it has so it can start to match its competitors. For this development, it needs heavy investment and planning to execute the vision it has for the aviation industry and developing other industries such as tourism and hospitality.

The Realistic View

Iran used its natural resources to attain economic development, a similar scenario as in other oil-based countries such as Saudi Arabia. Iran and Saudi Arabia are two countries, which can leverage on the onshore oil reserves available at a low cost. According to the Organization of Petroleum Exporting Countries (OPEC) data, Saudi Arabia accounted for 22.1% (266.56 billion barrels) while Iran accounted for 13.1% (157.53 billion barrels) of world’s total crude oil reserves in 2014. Over the years, Saudi Arabia has built its financial strength from oil revenues, but Iran was not able to achieve the same due to the economic sanctions imposed on it by USA, originally in 1979, strengthened in 1995 and then again in 2012.

Recent developments finally gave hope for Iran to catch up, though the process is expected to be slow. While the agreement with P5+1 has allowed Iran to stabilize its oil exports at about 1 million barrels per day, it is still 50% less than what Iran used to export before 2012. Another challenge are the declining oil prices, which have reached a level below US$30 per barrel in January 2016 from US$105 per barrel in 2012. Iran’s oil revenue accounted for about 12.5% of its GDP in 2012, a share that declined to 6.25% in 2014. The infrastructure spending share in GDP also declined by 3% points since 2012, as Iran has limited access to financing and the Oil Stabilization Fund (OSF), a fund to stabilize the economy against fluctuating oil revenues, was no longer operational.

In a scenario where majority of the economic development of the country is dependent on the natural resources such as oil and gas, once the oil and gas market slows down, the economic growth slowdown soon follows. Market fluctuations for oil and gas industry have led oil-based economies to diversify into other industries or build up financial reserves to sustain economic fluctuations. For Iran, aviation might be a tool to achieve that – the country plans to re-build aviation industry to make way for the tourism industry, which the country hopes to develop as part of the shift from being an oil-based economy.

The first step in this shift for Iran is to gather investment to develop and support the growth of aviation industry. However, Iran is in dire need of investments from external sources since it has no funds, assets, or resources to re-build or stabilize the economy. Iran was able to gain access to some funds worth US$32 billion from unfrozen assets abroad, which were available to the country once the sanctions were lifted – however, these frozen assets are not unlimited, and the Airbus deal worth US$27 billion was made from those unfrozen assets. At the same time, the investments cannot come from the growth of other industries such as manufacturing or agriculture, as any growth achieved from these industries will have to attribute to fiscal spending on developing human resources such as education and health of the population. Iran also needs trained staff personnel to support the development of non-oil based industries such as aviation and transportation. To do this, the country has to invest in training institutes and infrastructure to sustain the economic development Iran is hoping to achieve in the next few years.

The country is trading its natural resources to lure international companies to start or increase their businesses with Iran. For example, Total, a France-based oil and gas company, has signed a Memorandum of Understanding (MoU) to buy crude oil from Iran and promised research to look for other opportunities so it can invest in Iran. Such a deal brings in investment, which will help Iran to stabilize the economy or build financial reserve to later on invest in other industries such as aviation.

Currently, Iran needs close to US$220 billion in investment to uplift its aviation industry. The country cannot afford to sponsor this investment from its own reserves or funds from any other industry growth. These funds will need to be used to help maintain the economic stability as Iran is struggling with high unemployment and inflation. One of the best options for Iran is to leverage the natural resources such as oil and gas to other countries; in the pre-sanction period Iran could only do that with Asian countries such as China, India, or South Korea. Since the sanctions are lifted, Iran is open to expand its business options to European regions and USA as well.

EOS Perspective

The World Bank has forecast an optimistic growth of 5.8% for Iranian GDP in 2016, owing to the fact that Iran’s economy will benefit from the lifting of the sanctions from six super powers. In spite of the promise of industry growth, Iran has a lot on its plate to deal with before it can be considered a stable economy.

For starters, Iran has to gain the market share it once had in the pre-sanction period in the global oil industry, which means that it is going to adopt an aggressive strategy to gain back its lost clients especially European clients such as France, Italy, and Greece (in the pre-sanction period, these European countries were its major clients for oil trade). These countries used to do business with Iran but shifted to Saudi Arabia, Russia, and Iraq once the sanctions were imposed. Iran’s oil minister, Mr. Bijan Namdar Zanganeh, in an interview on November 5, 2015 was clear on Iran’s next steps when he said “Our only responsibility here is attaining our lost share of the market, not protecting prices”. Iran plans to sell oil at rates cheaper than its counterparts to gain the European clients back, which may result into an oil surplus in the market pushing the oil prices lower than US$30 per barrel. This also means that Iran would have short and medium term issues building up investments it needs to develop the aviation industry or even stabilize the economy to reduce unemployment and inflation. Apart from investments, Iran has to make changes to its existing policies to incorporate the growth of aviation industry. The country also has to gain access to trained and skilled staff who can handle the organizational and operational change the aviation industry will undergo in the next few years.

One major challenge for the aviation industry is that Iran still has not finalized a contractor for the repairs and maintenance of its already aging fleet. Lufthansa, the German-based aviation company, is in talks with Iran to set up a maintenance unit in Iran but nothing has been set it stone yet. With new airplanes in the pipeline and no immediate maintenance support for Iranian airlines, the industry growth might continue to be hampered more than before.

Iran needs to give priority to keep the in-service fleet in service. It might take years for aviation companies such as Airbus to complete the orders and during that time it is imperative that the older planes have access to machinery and repairs to stay in business.

by EOS Intelligence EOS Intelligence No Comments

Intermodal Transportation Picks Up Steam

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Intermodal transportation is emerging as a popular mode of transporting cargo owing to its economic and environmental benefits. While companies preferred over-the-road (OTR) transportation as it offered higher flexibility, a significant surge in freight rail infrastructure (especially across the USA and Europe) and a decline in availability of OTR drivers have led to several companies shifting to intermodal shipping. However, intermodal transportation has its own share of challenges, which, if not addressed effectively, can severely impact the entity’s operations.

As shippers are looking to cut costs as well their carbon footprint, they are steadily shifting towards intermodal transportation. This is further boosted by countries investing heavily to improve their intermodal infrastructure. However, growing popularity of intermodal transportation has resulted in shortages in chassis equipment and severe traffic jams at ports and terminals, among other challenges. Companies that manage to overcome these challenges by better planning and use of technology can definitely reap savings offered by this mode of transportation.

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EOS Perspective

The question regarding intermodality is not of a yes or no, but more of a ‘how much’. While intermodal transportation offers several benefits over OTR, it is very critical for companies to assess the extent to which intermodality can work for them. Moreover, given the improvements in infrastructure and technology, companies that currently feel that intermodal does not work them, should not dismiss it once and for all, but should continue to re-evaluate the situation every six-monthly to annually.

by EOS Intelligence EOS Intelligence No Comments

Flying LATAM Skies on a Low Cost Carrier: Dream or Reality?

With 600 million population, Latin America still remains highly unexploited by low cost carriers (LCC). The region is dominated by only six homegrown low cost airlines, which makes it a promising growth market for discount carriers. With growing middle class, flourishing trade and commerce, and appetite for travel, Latin America is destined to become a discount air travel hub. However, even with such substantial opportunities, LATAM region is yet to overcome the hovering hurdles standing in its way to fulfill its potential as a dynamic market for low cost airlines.

Some regions housing emerging economies such as South East Asia have grown to accommodate 22 low cost airlines while Latin America is stalled with only six — Azul, Gol, Interjet, Volaris, VivaAerobus, and VivaColumbia. Currently, travelers flying across only Brazil, Columbia, and Mexico have the privilege to book their tickets with a low fare airline. Other potential markets such as Argentina, Chile, Ecuador, Peru, and Venezuela remain unexplored by LCCs with minuscule penetration or complete absence of any discount carriers. Some of the roadblocks hindering LCC development in the region include high costs of operation, government bureaucracy, economic headwinds, etc.


Obstacles faced by new entrants and existing LCCs in LATAM
LATAM Low-cost Airlines


Is there any growth prospect for LCCs in Latin America?

The emerging Latin American countries offer an array of opportunities for low cost airline industry, leading to new LCCs slowly starting to enter the market with recent example including the Southwest Airlines, an American low cost carrier, which in March 2015, started operating flights between Costa Rica and Baltimore (USA).

Currently, Latin American travelers typically opt for long haul buses, which are an economically viable, yet time-consuming option, to travel long distances. However, the advent of LCCs in the region could completely change the landscape for time and money conscious travelers. The LCCs could offer cost effective travel in a much shorter time.

New emerging customers

The burgeoning demand for air travel is increasingly accompanied with favorable conditions such as the growing middle class and signs of recovery in GDP growth, which collectively are likely to push low cost airlines’ growth in the near future. Presently, the middle class represents about 34% of the population in Latin America, approximately 200 million people, and is likely to grow resulting in higher demand for no frills airlines. The growing middle class, possessing the required financial means, is likely to push intra-regional travelling, as these people will want to travel for tourism and work. This section of the population is prone to consider travel options that are more expensive but less time consuming than long haul buses, but would still not be able to afford mainline airlines fares. Hence, they would prefer flying with a low cost airline.

As in 2015, the Latin American economy is forecast to show signs of recovery from years of slow GDP growth, the overall economic growth in the region is likely to increase investments in the LCC market and put higher disposable income in hands of the middle class population. This might lead to higher spending on vacation, thus, pushing the interest in LCCs. Economic growth is likely to pick up in countries such as Mexico, Chile, Colombia, Brazil, and Panama. In 2015, Brazil is forecast to grow at 1.4% from 0.3% in 2014. Chile is expected to rebound witnessing a 3.3% GDP growth in 2015 after slowing to 1.9% in 2014. Mexico’s GDP growth is likely to accelerate from 2.4% in 2014 to 3.5% in 2015.


Cost cutting and revenue generation

LCCs are seeking opportunities to reduce cost of operation and generate more revenue. For ticket reservation, LCCs are switching to direct sources (airline website) or metasearch engine (a search tool that takes input data from other search engines to produce its own results) instead of relying on Online Travel Agencies (OTA) such as Despegar, which sell various airline tickets. While the OTAs are perceived as a convenient platform for travelers to compare prices and book airline tickets, they seek a healthy cut from airline ticket sales. Switching to direct sources or metasearch engines could help LCCs cut intermediaries and boost profits.

Airlines are trying to drive revenues by selling ancillaries such as luggage, seats, hotel services, etc. by driving traffic to their own website. VivaColombia and VivaAerobus have refused to pay OTAs and have started distributing tickets through metasearch engine, Escapar, while Volaris has switched to Kayak (a US-based metasearch engine).

Further, airlines are focusing on international route expansion — particularly to the USA — to earn higher passenger yield (average earning of an airline generated by transporting passengers) and to take advantage of the growing international travel demand. In 2015, airlines such as Volaris, VivaAerobus, and Gol plan to bolster international network breadth. In H1 2015, Volaris increased international capacity by 33% and its traffic grew by 28%. By the end of 2015, Azul plans to start flights between Guarulhos (Brazil) and Orlando (USA) as well as Belo Horizonte (Brazil) and Orlando.


Despite the setbacks, jetting across Latin America on a low cost airline does seem like a reality in the foreseeable future

Presently, the low cost airline market in Latin America faces various challenges such as high cost of operation, currency depreciation, and regulatory hurdles. However, with new airlines starting to slowly enter the market, growing middle class pushing the demand for LCCs, and higher forecast GDP growth resulting in more disposable income in hands of people, the future of low cost airlines seems rather bright.

by EOS Intelligence EOS Intelligence No Comments

Container Shipping Industry – The Need Of The Hour

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Global container shipping industry has suffered through five unprofitable years and still does not seem to see much light. The industry is battling overcapacity, declining freight prices, and stiff undifferentiated competition, and with the new capacity expected to come online, these challenges are likely to persist. But the hurdles also present hidden opportunities for ship liners to improve performance across organizational, commercial, and operational activities. Moreover, extracting more from strategic alliances to include joint procurement and operational benefits can also help the industry in whole.

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As the industry suffers from a host of challenges, it is imperative for the carriers to step up and develop plans that could improve their profits. It is believed that several sound initiatives could potentially elevate these companies’ earnings by up to 15%, which could be enough to can steer them back to profitability.

To realize these benefits, companies need to bring about significant changes in their organizational structure, operational management, commercial management, and nature of alliances. Carriers that manage to introduce these changes will be in a better position to combat the current depression in the business and return to profitability.

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While these changes might be challenging to embrace, the industry has reached a stage where only drastic measures can keep them afloat and profitable. Carriers that can initiate a comprehensive transformation in their operations and organizational structure are likely to be to only ones able to steer ahead of competition.

by EOS Intelligence EOS Intelligence No Comments

State of European CV Market in the Euro VI Era

EURO VIThe Euro VI legislation, Europe’s most stringent emissions legislation yet, which applies to all new diesel-engine trucks and buses, came into effect on January 1, 2014. Compared to the Euro V, the Euro VI vehicles are more expensive, due to the inclusion of SCR (selective catalytic reduction) after-treatment, EGR (exhaust gas re-circulation) and a DPF (diesel particulate filter). These Euro VI legislations lower NOx and particulate emissions by 80% and 66%, respectively. Moreover, the implementation of Euro VI is expected to lead to a globalised testing and standards legislation, one which would be in compliance with the USA-equivalent emission limit values. However, it is interesting to note that despite all the advancement, there are no apparent operational benefits (from the adoption of the Euro VI) to end-users.

Additionally, this legislation driven technological advancement obviously comes at a cost, and CV manufacturers are in a conundrum, wondering how to pass on the price increase to fleet owners, in a market, which is yet to recover from the turmoil caused by the global financial crisis in 2008 and 2009 (European CV market halved in terms of new registrations between 2007 and 2009). However, owing to intense competition and in order to avoid losing market share, CV manufacturers have kept financial prudence aside and subsidized the price increases, either directly through discounts or indirectly through attractive repair and maintenance packages.

CV manufacturers, looking for returns on the billions of Euros they have spent to develop the new generation trucks, say, the switchover is particularly hard because of the absence of government incentives – cash-strapped EU governments are not in a position to subsidize, as in previous changeovers. This creates a different picture and dynamic in this transition compared to what the industry has seen before.

Typically, in such scenarios, business logic dictates a significant pre-buy (where fleet replacement is brought forward), in this situation, before January 2014. However, the broader macro environment on the continent, and the state of the European CV market (12% decline in CV registrations in 2012), meant that CV registrations increased only marginally in 2013, by 0.8%. Evidence from truck buyers showed that in 2013, some buyers even bought new Euro V trucks, before switching to new models, as users were also apprehensive about the performance of relatively untested Euro VI models.

While, some of the large fleet companies did pre-buy – for instance, British companies Eddie Stobart and A.W Jenkinson Forest Products, entered into a joint-procurement agreement with Scania, which would see the introduction of 1,500 Euro VI vehicles during 2014 and 2015; majority of smaller fleets and owner-operator segments have got left behind, mainly due to lack of viable financing options.

Small fleet owners will inevitably find themselves being squeezed from both sides. As their existing Euro V fleet ages, maintenance costs will rise, while the residual value diminishes, meaning that the real cost of transitioning from Euro V to Euro VI is, for fleet operators, increasing. Eventually, this would prove to be a cost too great to justify, and operators caught in this trap will have little choice but to exit the industry. The consolidation process is already in motion in Europe, and Euro VI seems to favor larger fleet operators and, thus, it would seem that this consolidation process will now gather momentum.


“This is the most punitive legislation the European truck market has ever had to contend with. EURO VI could be the final nail in the coffin for a significant amount of smaller fleets.” – Oliver Dixon, Principal, West End Companies


The impact of such a shift will have far-reaching consequences for stakeholders across the European industry, but CV manufacturers may well be regarding this outcome with some trepidation. A market that is characterized by few big buyers, is one in which the seller has diminishing influence and limited pricing power. The impact of Euro VI on the operator base has been widely debated already; however, its impact on the manufacturer base may be just as significant.

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