Later today Aircell will publish on its blog a rather thorough Q&A with its president and CEO Michael Small, who talks about everything from the firm’s business model to its technology road map and the future of Ka satellite-based in-flight connectivity.
Aircell was kind enough to give me an advance copy of the Q&A. I’ve highlighted what I think are some of Small’s most interesting points (some are a bit controversial). Do you agree with him?
Aircell’s Q&A with president and CEO Michael Small
What differentiates Aircell from other in-flight connectivity providers?
We are the world leader in both commercial and business aviation when it comes to in-flight connectivity. We’ve earned that status by providing flexible, cost-effective technology solutions that are highly reliable, quick to install and work in a myriad of commercial and business aircraft applications. This has allowed us to reach operational scale, which truly sets us apart from our competitors. As of today, we’re the only in-flight connectivity provider that has proven our model is scalable and meets the diverse needs of our airline partners for every single plane, today and into the future.
It has taken a significant capital investment and years of attracting top talent in the industry to get to the point where we are today: the largest in-flight connectivity provider in the world. We’ve now reached economies of scale that bring significant value and savings to our airline partners.
For example, because of our experience, we can typically install our equipment overnight without taking an aircraft out of service – which is a huge savings for our airline partners. We also have extensive experience in managing bandwidth usage which enables us to maintain a high quality, consistent experience for our airline partners’ passengers. To our airline partners we’re a full service operation, providing in-flight and on the ground customer care, back office operations and equipment maintenance. So it’s more than just putting an antenna on a plane and flipping a switch.
Technology is also a key point of differentiation. We are technology agnostic – whether it’s our exclusive Air-To-Ground (ATG) system or satellite technologies on both commercial and business aviation. One of the main misperceptions is that we are only an ATG company. Most people are not aware that we have the largest deployment of satellite-based aeronautical communications systems in the world with our business aviation customers. We can utilize our exclusive ATG network, but we can also use the same satellite technologies that our competitors utilize where we think it makes sense. And because of our scale, we will be able to offer these technologies on a more cost effective basis.
The bottom line is that our flexibility allows us to meet the needs of our Airline partners in the most cost-efficient manner while maintaining a superior customer experience on any plane, any mission. With our experience, we believe we’re uniquely qualified to manage those technology decisions and operational issues so our airline partners don’t have to.
Is Ka the future of In-flight Connectivity?
When we talk about satellite technologies, it’s important to make the distinction between domestic and international coverage. We believe global Ka will revolutionize overseas connectivity similar to the way ATG did domestically. We’re particularly excited about what Immarsat’s doing in the space. That’s the primary reason Ka is an important part of our technology roadmap.
We expect Ka satellite to be a realistic solution by 2015, both domestically and internationally.
Before that date in the domestic market, based on our knowledge of what traffic patterns and usage will be, we have questions about the satellite coverage for large portions of the United States west of the Mississippi River. The technology was originally designed for terrestrial use that focused mainly on the coasts. This leaves a gap in coverage in the Midwest. Right now, it is unclear as to how that problem is going to be solved in the near to midterm.
Even if everything with the coverage gap is addressed and everything goes perfectly with the satellite launch, antenna development and certification, there’s no proven timeline for installation of the equipment in the aircraft. We know from our experience that this can be a major hurdle. We’re hoping for everything to align so we can effectively add Ka to our technology mix, but there are too many uncertainties at this point to expect that before 2015.
We believe domestic Ka has the potential to provide increased capacity for certain fleet types; however, we don’t see Ka as a full-fleet solution for many years due to the current size, weight and drag of a satellite antenna. Satellite equipment is expensive and logistically challenging as compared to ATG and ATG-4, which are cost-effective, light-weight, easy to install, and more than adequate to meet the capacity needs of regional jets and other smaller aircraft now and in the future.
We have the unique ability to utilize ATG and ATG-4 to solve any coverage or capacity deficiencies in the center of the country so we’ve optimistically put Ka in our roadmap beginning in 2013, despite the other unresolved issues. But, again, we don’t see Ka as a standalone solution domestically until 2015 or beyond. Our plan is to phase Ka in where it makes the most sense as soon as it becomes available and supplement it with our ATG and ATG-4. We will then continue to evaluate our technology mix as Ka becomes a more proven solution in the marketplace.
What about Ku?
Domestically, Ku is clearly yesterday’s technology, and we are not going to invest in it. It’s expensive and less reliable than ATG; with an inferior online customer experience that is spotty from our experience. In my opinion it makes little sense for an airline to invest in Ku at this time.
Globally, Ku is the only technology available for service over the oceans today. We expect that global Ka will represent a significant improvement over Ku in terms of capacity, cost and coverage. While we maintain the ability to deploy Ku for airlines that require over water service today, we believe that airlines are increasingly coming to realize that waiting for Ka is likely the better choice.
We believe the bandwidth costs for ATG-4 and Ka will be very similar, but the equipment costs and weight and drag on the airplane will be significantly lower with ATG. Ka will allow for more capacity, which is why we see it as a long-term solution for larger aircraft with longer missions where you can recoup the increased equipment costs. However, for basic consumer needs like surfing the Web, social media, and checking email, we still believe ATG-4 will offer a better consumer experience due to better latency. It’s also a more cost-effective solution on many planes.
People have the perception that the increased capacity satellite provides will allow them to stream full length, HD movies off the internet, but that’s just not the case. Whether you’re talking about satellite or ATG, this kind of streaming will be cost prohibitive
That’s why we created our new video product that we recently announced with American. It will allow passengers to pull videos from a digital library that’s stored on the plane, and played on passengers’ own devices. We’re exploring ways to update that content in close to real time. We feel it will provide the best performance at the most reasonable price. We’re also seeing the market moving from live to stored content.
There seems to be two business models in the domestic market place – a wholesale model and a turnkey model. Why do you think the Gogo turnkey model works best?
We’ve spent years building our expertise in this unique space and bring a great deal of value to our airline partners. We’ve closely analyzed bandwidth rates and usage patterns to maximize the most cost-effective solutions; we provide full customer support; and we offer technical service and advice. This is a true turnkey operation for our airline partners.
Competitors offering the wholesale model claim the airline will have more control, flexibility and payback than the Gogo model provides, but that’s just not true. Our model, in fact, offers airlines a lot of control and flexibility in determining how their customers will interact with the service. And unlike the wholesale model, which puts the burden on the airlines to build capabilities and operationalize a new line of business, Aircell’s operational expertise and economies of scale enable the airlines to generate paybacks well beyond what they’re likely to achieve doing it themselves.
As one example of the expertise we provide, we think, and we think that our airline partners agree, that they have better use for their time than managing an in-flight internet company and monitoring usage rates to assure costs don’t get out of control. In a wholesale model the provider has no incentive to minimize bandwidth usage because it gets paid based on the volume used. The airline would need to monitor usage to make sure they aren’t paying too much for bandwidth used but they have no ability to manage it. We understand the airlines goals and have built enough flexibility in our model to accommodate them.
While our competitors would like to see the IFC industry evolve into a wholesale model, the reality is that nine airlines have chosen Gogo over competitors’ offerings. I can’t think of any better evidence that our model works. Based on what our partners tell us, many airlines don’t want a wholesale model. In fact, one airline partner told me they fear a wholesale model will destroy the value in the category for suppliers and the airlines. They also feel that it will force the airlines to prop up this space and turn it into a cost center.
What’s Aircell up to that you’re most excited about?
More than 60 percent of Gogo users tell us that the availability of Wi-Fi is the determining factor in choosing their flight, all else being equal. More than 30 percent tell us it’s the determining factor, period. What they most want is ubiquity, so we are aggressively working with our airline partners to get them to full fleet, which we believe is the key to maintaining the great growth in the percentage of people per aircraft who use the service. We’re excited by our recent expansion announcement with American, which brings our total of full fleet airlines to five.
On the technology side, we’re very excited to roll out our ATG-4 service, which should start happening in the very near future. ATG-4 will significantly enhance the existing ATG network and increase per aircraft capacity by approximately four times current levels through the addition of a directional antenna, dual modem and EV-DO Rev. B technologies. We will be able to upgrade our current system to accommodate the new service at very low cost.
On the product side, we’re thrilled about our new video product. It is a win-win proposition that changes everything in the world of IFE. Passengers want to consume content on their own devices. Airlines don’t want to be burdened with expensive, heavy IFE equipment that must be continually maintained and updated. The video product will allow passengers to stream the latest videos and TV shows at their convenience. In the fall, we will build on our video offering by unveiling a new project that will truly revolutionize the way passengers entertain themselves and receive information in flight. More information on that project will be coming soon.
On the business aviation side, we’re excited about the launch of our next-generation voice capabilities, which utilizes our ATG technologies to offer the aviation industry’s best voice quality. The high bandwidth and very low latency characteristics of ATG will combine to enable a level of voice quality and clarity that will be unrivaled by any previous or existing aviation solution.
Lastly, now that we’ve fully operationalized and scaled our business, we are giving our airline partners the flexibility to customize and enhance their passengers’ flying experience and the freedom to bundle and price the service in ways that are most beneficial to their customers.