A long-time consultant in the satellite and telecom industries, Tim Farrar of Telecom, Media and Finance Associates has given some truly insightful perspective on the in-flight connectivity scene. In an October 2006 report, he predicted that it would be very difficult to resurrect the Connexion by Boeing service without a very large financial commitment from Lufthansa or other large airlines, and that a minimum cost of at least $80 million per year would be required to operate the service and provide near-global coverage.
Over the last eighteen months, many of these predictions have been borne out, notes Farrar in a new comprehensive study of mobile satellite services, which includes a hefty section on the aeronautical communications market. Tim was kind enough to send me the text. Here’s just a chunk of his take on the existing aeronautical MSS market.
1.1 The existing aeronautical MSS market
Despite considerable efforts by a number of parties, including Viasat, Panasonic and SES, no replacement Connexion-like service has materialized (although Boeing continues to provide service to US government aircraft including Air Force One and it remains a possibility that service will be reintroduced on a limited number of routes such as the North Atlantic).
Delays in approval of in-flight cellular and the decision of many airlines to wait for the launch of Swift Broadband in late 2007 has meant that in-flight cellular has not yet progressed beyond trials, although Ryanair expects to equip 50 aircraft during 2008, and trials are being conducted with Air France, Qantas and other airlines. However, there appears to be less confidence in the success of revenue-seeking low cost airlines such as Ryanair than in business-focused long haul airlines such as Qantas and Emirates.
Indeed many of these airlines have explicitly refrained from revenue-maximizing strategies, opting to focus mainly on SMS and Blackberry data services to avoid upsetting travelers with loud voice conversations.
In the US, the FCC has declined to reconsider the current ban on in-flight cellphone use, due to an outcry from passenger groups, prompting airlines to focus on Internet access services for laptops. Aircell has made steady progress with installation of the base stations for its terrestrial-based service, and has announced agreements with two airlines (Virgin America and American).
Virgin America will fit the technology fleetwide (its fleet is planned to expand to 34 planes), while American will install the system initially on its 767-200 fleet of 15 aircraft operating mainly on transcontinental routes between New York/Miami and San Francisco/Los Angeles. Aircell’s initial pricing for the service on American Airlines is $9.95 for flights of up to 3 hours and $12.95 for longer flights.
More surprisingly, Row 44, which uses HNS technology, has secured deals with Alaska Airlines and Southwest to trial its technology, while Viasat has not announced any airline customers for its offering (although we understood an agreement has been signed with one airline which we assume is US Airways, since that airline has announced it will trial in-flight Internet access but has not confirmed the vendor).
Alaska Airlines will test the service on one plane in Spring 2008 and then decide whether to move to fleetwide installation across its 114 aircraft, while Southwest will conduct a trial on four aircraft in summer 2008. JetBlue’s LiveTV unit, which won a smaller 1MHz segment of air-to-ground spectrum, started offering a very limited free service on one JetBlue aircraft in December 2007, which gives laptop access to Yahoo Mail and email on certain WiFi-equipped Blackberries.
Continental also plans to install the LiveTV email service in the future. It appears that the primary objective of all the airlines who are trialing in-flight connectivity in the US is to achieve differentiation rather than to capture incremental revenues from the service itself. Although it is targeting primarily leisure travelers, Virgin America has been developing a differentiated service (with mood lighting, satellite TV, etc.) and the in-flight connectivity fits with this objective, while American is attempting to defend its base of premium business travelers and Southwest is seeking to expand its share of the business travel market.
While the recent success of Row 44 at the expense of Viasat was perhaps unexpected, given Viasat’s prominence in mobile broadband, and previous involvement in Connexion, we understand that Viasat’s spread spectrum technology requires providers to dedicate a whole transponder to the uplink and downlink in each coverage area, whereas the HNS technology can operate within a partial transponder, depending on the demand in a given area. Thus the cost of providing coverage can potentially be lower, particularly for a startup provider.