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):
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!