Tim Farrar thinks Aircell’s Gogo in-flight connectivity solution is a great service. He’s just not convinced that the firm will be able to make good on its equipage and financial predictions.
The president of consulting and research company TMF Associates felt compelled to write me an email today after reading comments from Aircell chief Jack Blumenstein posted by yours truly.
“I found your recent coverage of Aircell interesting, particularly the suggestion that they may need to raise further funding. It seems rather doubtful that they’ll be able to reach their stated milestones of 2000 aircraft equipped and profitability by the end of this year,” says Farrar.
“In fact, given the levels of usage I’ve seen, and the current financial climate, it wouldn’t surprise me to see them end up in the same situation as Connexion: a great service, but one that’s impossible to make profitable in a reasonable timeframe.”
Farrar gives a breakdown of the Gogo usage he witnessed during a recent American flight in his own blog post “More airlines, but apparently few users for Aircell”.
Here are the key pars:
On a American SFO-JFK afternoon flight last October, we decided to walk the plane and count the number of users: the result was 8 out of 34 business and first passengers were using it, but only 2 out of about 110 economy passengers. I’m sure American is pleased with this – since the high revenue customers at the front of the plane are happy, but the amount of money flowing to Aircell is far from enough to pay for the network. We understand that to date Aircell has installed the equipment for free, so the only cost to the airline is the fuel to fly it around.
Based on the usage levels we saw, gross Aircell revenue is probably only ~$60K-$80K per plane per year, less even than the $100K seen by Connexion-by-Boeing back in 2006. Connexion had many of the same characteristics – giving away equipment, a high fixed cost network (in that case global satellite capacity leases rather than a national tower network), a large staff, and was also a great service for passengers and airlines.
There are a few differences, most notably that the Connexion equipment was much heavier and more expensive than the Aircell terminals, but also that Aircell can supplement its passenger revenues with installations in the business jet market. However, Boeing ultimately decided it couldn’t afford to continue to run the service, as did Claircom, Airfone and others with their earlier voice services. In the current financial climate, we wonder if Aircell’s network will be able to avoid the same fate?
Aircell hasn’t released any hard and fast usage stats just yet, but the company insists Gogo figures are exceeding expectations.