Does Aircell get an average six users per flight?

Aircell has never released usage stats for its Gogo in-flight Internet system. Yet, in a statement last week, Aircell CEO Ron LeMay came awfully close to giving away the goods. In so doing, he has lit a fire of speculation in the IFEC industry.

Two IFEC insiders, located on opposite sides of the world and from opposite sides of the IFEC industry (and whom we’ll call Chap 1 and Chap 2) have each concluded that Aircell is getting about six users per flight.

Here’s how they get that figure.

Says Chap 1:

Aircell claims it served its one millionth customer in October, and that users are fast approaching 100,000/week.

Sounds impressive, doesn’t it?
 
In reality it is 14,286 users/day. Divide it on the 623 aircraft out there with Gogo and you get 23 daily users.

Since they probably fly 4 segments/day, you get 6 users/flight!   

So obviously there is not much change in usage from what we have known since before and not more usage than Connexion by Boeing had in 2006. 

In a completely separate exercise, Chap 2 hands us the following chart (click on it to make it bigger):

Aircell usage stats.JPG
So what does this mean?  “Well, combine this with Row 44 saying they are getting 4% and hoping to grow this to 12%, it matches perfectly with the numbers above. Then add on Google wanting it to be free in airports and you nailed it. People are just not going to pay,” says Chap 2.

Okay, we’ve been talking about this for some time now. Folks love in-flight Wi-Fi (I can pull up another Twitter stream if you need proof) but they don’t seem willing to pay. So lets venture into the world of complete and utter speculation about Aircell’s costs and when it might be able to pay those off.

It could be a useful exercise and may provide a ray of hope for the pay-for-service model albeit with an important caveat. But again, this is the world of speculation!

Says Chap 1:

“If we assume that Aircell has been giving away the installations at $100 000 each, the cost for them to date has been $62.3 million. Add the cost for the spectrum ($33 million) and the cost for the base stations (just guessing $50,000/each x 100) you have another $5 million for a grand total of $97.3 million that needs to be paid.
 
If we assume 100,000 users/ week, all paying $10 for the service (yes, I know they give a lot of it away for free) they would be generating roughly $1 million/week.

With an annual salary cost for maybe 200 people assuming they all make $60000/ year (not sure if that is a reasonable assumption, but might work as an average) their cost to the last year has been $12 million.
 
So unless they have any other CAPEX or costs that we have missed out, and no cost for running the network and their facilities, they should be able to pay off their capital cost in two to three years. 
 
ASSUMING THAT THEY DON’T GIVE ANY REVENUE TO THE AIRLINES!

Many thanks to our two chaps for their insight. I think Aircell may still have a few tricks up its sleeve. More on that later.

In the meantime, US legacy carriers finally have got something to boast about – they are the first sizable group from the same geographical region to offer in-flight Internet to passengers.

Their customer service may be abyssal, their ancillary fees a pain, and their seemingly nonchalant attitude an embarrassment to mankind, but legacies are trying to keep you connected. Nice one, chaps!

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5 Responses to Does Aircell get an average six users per flight?

  1. China Lawyer November 22, 2009 at 10:34 am #

    My bias is that I LOVE in-flight internet and I want it to succeed.

    And that is the thing. Those who love it really love it and go so far as to choose their airlines/flights based at least somewhat on whether it has it. If this is the case, why aren’t airlines subsidizing it, or are they?

  2. Mary Kirby November 22, 2009 at 11:15 am #

    I’m with you on this. I absolutely love in-flight Internet and I do NOT want to see Aircell fail. The service is tremendous. I am literally counting the days until my hometown airline, US Airways, gets Gogo on its transcon A320 fleet. But people want it for free. How to make them pay?!?!?!

  3. Erik Peterson November 22, 2009 at 12:12 pm #

    The best way to get people to pay is to make them unable to live without it. Give people free Internet for a few flights and soon they will be hooked. Personally after using in flight wifi on my last 3 flights, only having to pay once (first time was free, second time was some cheap intro rate and the third time it was free and sponsored by ebay) I’ve now reached the point of must have WiFi when flying.

    I thought the sponsorship idea was a nice one and if it happens more often your friends “chap 1″ and “chap 2″ should incorporate it into their calculations if they can figure out how much the sponsors are paying.

    One other idea that I think would have traction would be to give free WiFi to the 1st Class cabin and get the airlines to pay the cost as a perk. Think about all those freq. flyers who get upgraded (like me on my flight later today) who are going to turn into promoters for the service and customers when they don’t get their free upgrade.

    I hope some of these ideas work out, I don’t want to see AirCell fail either!

  4. Roger November 22, 2009 at 2:08 pm #

    I’m a contrarian. Firstly at 6’4″ there is no way I can use a laptop in economy because the seats are too close together. And in Business/First I’d expect the wifi to be part of the ticket. In addition both my phone and laptop do wifi and I really wouldn’t to pay twice.

    On the price side the airlines only have themselves to blame due to yield management. The message they very strongly communicate is that it is all about price. When no two people on the plane pay the same amount for a ticket even though they get exactly the same product, consumers also start focusing on price.

  5. Interested Observer December 3, 2009 at 11:02 am #

    An update for Chap 1′s figures: VC money in Aircell since its acquisition in 2006 is rumored to be around $250M, with a big chunk of debt service due in early 2010…