UPDATED: A mouthful about Row 44, Southwest…and Inmarsat

UPDATE: I heard from a trusted source this morning that Southwest Airlines’ fleet plan, which lists all aircraft maintenance planned three months out, calls for a 737-700 to be equipped with Row 44 in January. This would be the fifth Southwest 737 equipped with Row 44.

Consultant Tim Farrar’s latest blog about Row 44 is sure to get tongues wagging this week.

Farrar claims that the business case for Row 44′s Ku-band service “looks even more questionable than we had suspected, and it faces a near term deadline (we understand January 2010) from Southwest to secure $100M+ of funding for its planned fleetwide rollout”.

Key par (but do read the whole thing):

“We have been told that the Southwest-Row44 agreement calls for Southwest to pay Row44 a fee of $0.25 per passenger flown on each equipped aircraft, whether or not they use the service, and Southwest will then mostly likely give the connectivity away for free. With Southwest carrying about 170K passengers per plane per year, that would mean Row44 receiving just over $40K per plane per year (about $22M per year in total once fleetwide installation is complete), which it hopes to supplement with advertising revenue. However, we are doubtful that a dramatic increase could be realized from advertising: for example according to a recent article, in-flight magazines generate an average of about $1M per airline per year in gross advertising revenue, and a large airline such as Southwest would presumably therefore generate in the high single digit millions of dollars from its magazine. Given the lack of technology (and power outlets) required to read the magazine, then even if Southwest gives away the Row44 service for free, usage would be far less than the 80% of passengers that read the in-flight magazine, and we would view it as unlikely that advertising revenue could add more than a few million dollars to Row44′s income.”

Farrar goes on to question the sustainability of large-scale Ku-band passenger deployments in general, and even throws in an unconfirmed (as of 9pm Monday night) nugget about Inmarsat releasing an RFI for one or more Ka-band satellites, “which are likely to be part of its planned roadmap for future government and/or aero services”.

Tim, have you no decency? I was watching Mary Poppins tonight for heavens sakes! :)

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7 Responses to UPDATED: A mouthful about Row 44, Southwest…and Inmarsat

  1. Wandering Aramean December 15, 2009 at 10:24 am #

    At $22MM annual cost to WN it makes sense to just give it away. The amount of additional revenue and customer goodwill they’ll receive is worth it, even if they don’t recoup anything on the advertising side.

    The concern I’d have – much like I do with Aircell – is if the revenue stream is sufficient to keep the infrastructure operational over time. An operating budget of $22MM annually isn’t all that much money for Row44 to be working with.

  2. Antony Payne December 15, 2009 at 12:02 pm #

    Mary, Tim – I’m sure you mean well, but this kind of misinformation once published should not go uncorrected. I know we’ve seen this error before from Mr Farrar, so why doesn’t he modify his pitch? It simply is not the case that Row 44 has to come up with the CAPEX he refers to. Unlike Aircell, Row 44 has not been giving its gear away and is not making such an offer.

    Further, I find it odd that in the same article Mr Farrar goes out of his way to praise Aircell’s failing business model, gives props to Inmarsat’s narrow- (oh sorry, broad-) band offering, praises the never-to-be-profitable Lufthansa CBB exhumation and then waxes lyrical on Ka-band, which is a million miles from being a practical wide ranging infrastructure for aviation. I’m surprised he isn’t longing return for the return of ‘the cached Internet’ from Tenzing.

  3. Mary Kirby December 15, 2009 at 12:17 pm #

    Hi Anthony,
    Thanks for your comment.
    When Southwest announced its decision to go fleet-wide with Row 44, it also confirmed (at that time) that it had not reached agreement on how to finance the installs, and other financial particulars (stuff shareholders would like to know, I’m sure). I do not know Tim’s source, but you’ll notice I use the word “claims” from the get-go. And I’ve updated the piece with new info (from a trusted source) that Southwest’s fleet plan calls for install on a -700 (so it would seem that roll-out, if modest, is in the cards). Row 44 knows I’d love to talk to them, but they have been relatively quiet with the press. Of course, if you see a WSJ story about Row 44 this week….

  4. Tim Farrar December 15, 2009 at 1:03 pm #

    If Southwest was going to pay for the installs themselves as well as pay for the service then I’m sure that would be great for Row44 (and indeed that’s exactly the model I’ve been trying to suggest we need to have for this business to work). But then why have Row44 been trying to raise $100M+ for the last year unless they have to finance the installations? They don’t have to build a nationwide network and buy spectrum like Aircell, and can pay for the capacity on an as-needed basis via their agreement with Hughes. And why on earth wouldn’t Southwest opt for Aircell instead (yes, I know you can say that Row44 may be a better service, but investing $100M+ of Southwest’s own money would seem pretty hard to justify when all airlines are struggling)?

    I’m far from enthusiastic about any of these projects making a return on investment (though don’t get me wrong – I love the service and really don’t want to see it all disappear like CBB). The only way it is going to work out is if the airlines start paying their way, based on increased passenger loyalty and/or “operational benefits”. Hopefully that message is sinking in with the providers (that’s the reason I’m pleased to see Aircell’s new pitch), but I don’t know if the airlines have acknowledged it yet.

    Nevertheless, we are at least far enough down the road with Aircell that it should survive (the advantage to spending all that capex upfront), Inmarsat can take it or leave it, and for Panasonic it doesn’t really matter if it helps them sell more IFE and Intelsat takes the capacity risk (shared of course across all their services including government and maritime).

    I’d absolutely agree that Ka-band is a long way from being practical today, but if you are going to do a sat-based broadband service which can deliver the desired passenger experience at a price for capacity that is affordable, then I think we’ll just have to wait for it to become practical (and remember we already have the capacity available today in North America).

  5. Guest December 15, 2009 at 2:38 pm #

    One thing people keep missing about Aircell’s business model is that they have two markets they serve. Airlines and business jets. Sure, there are questions over how many people will pay for internet access while on an airline, but Aircell’s business model appears to be very different for biz av, and while they are not releasing numbers on how many biz jets are taking their broadband product, they sure have released a lot of press releases indicating it’s got a strong takeup. Aircell provides voice services to thousands of biz jets today, and if they get a good chunk of those to take internet too, then their finances would appear to be in much better shape than folks are speculating. It’s also something that the Ku folks can’t match – Ku is just too big to fit on most biz jets. My money says Aircell’s going to be just fine.

  6. Antony Payne December 15, 2009 at 8:31 pm #

    Mr Farrar appears certain that Row 44 needs to raise $100m but this is just not right. Row 44 has repeatedly said that they need less than half that amount to get to profitability. I would suggest that if Row 44 is starting on such a large raise (BTW I don’t think they are) it is more likely aimed at securing international business or making acquisitions?

  7. Princess Orn April 2, 2011 at 11:39 am #

    Inspiring — thank you for sharing your story.