Re-running Connexion numbers; and is voice key?

What’s an IFE&C journa-blogger to do when asked by an industry insider to re-run the numbers on the Connexion by Boeing math formula posted last week? Tell the industry insider “hell yeah”. I love to have as much food for thought as possible. Don’t you?

 
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So here is the new equation care of said industry insider, and some reasoning behind why voice calls may turn Ku-band into a profitable venture. Whatcha think?

The number of passengers who used Connexion in the first two years is completely irrelevant, says our source. “The number was low for many reasons: slow introduction (they had 200 planes only at the END of the period), airlines started marketing actively only after a few planes were installed, lousy marketing, poor branding etc.”

The right calculation should be how many people SHOULD have used it: So take 200 planes X 600 seats a day (this equates to 200-seat planes operating 3 flights a day or 400 seat widebody operating 1 ½ flights a day) X 320 operational days a year X 0.8 load factor = 31 million passengers a year.

Take the usage rate Gogo is getting (good estimate) of 10% and that equates to 3.1 million passengers a year! – significantly more than David Friedman’s 250,000 per year.

Also, the 2-year period makes no sense – NO ONE expects to cover capital costs in 2 years – 5 years is much more reasonable.

NOW if you multiply 5 years X 3 million users X $10 per session = you get $150 million which is much, much better compared to the capex of $100 million (which was a good figure for Connexion)

However, as you did mention, there are some “small” operating costs which amount to about 65% of the revenue – leaving only $50 million to cover $100 million investment.

So bottom line – calculation was flawed but result is same (even though not so extreme).

The answer of course is: 1) cheaper systems than those of Connexion – the new generation should not be more than $350K per plane and 2) Utilizing the system for phones too.

To be profitable on a KU system – Wi-Fi is not enough. There must be revenue from phone calls. (Sidenote from moi – note that Panasonic sees voice playing a big role in its eXConnect offering).  

The additional investment for making phone calls from planes is relatively low – not more than $100K per plane, infrastructure is identical, and revenues will probably be at least twice or three times as large as Wi-Fi revenues

Eureka – a losing business becomes a profitable one!

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2 Responses to Re-running Connexion numbers; and is voice key?

  1. Mike June 30, 2009 at 3:01 pm #

    My favorite quote from above.

    “The right calculation should be how many people SHOULD have used it”

  2. Mary Kirby June 30, 2009 at 4:39 pm #

    I too thought that was a gem.

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