Here is what senior analyst Claude Rousseau told RWG:
- NSR forecast is for a ten-year period and the planned installation rate for Ku-band in the next five years is the highest we've seen (not sure if this is historical but what we track is shipped and installed). The forecast is based on units installed only as these are (theoretically) generating traffic thus revenues, either from the cabin or from the crew. Thus we do not differentiate between revenues coming from the passengers or from the crew.
- The business models for commercial in-flight connectivity today is still very much in flux as you know, which is normal for an emerging service. I would love to have some hard numbers from the various models but it seems airlines and service providers are shy about that and these change from one airline to another. From what I gathered, most often the service providers sell the equipment + airtime (bandwidth) bundled together to airlines. Suffice it to say that the (bad) experience of 'giving' the equipment as OnAir did to Ryanair has put that model to rest (if Row44 is paying for SW equipment, then too bad for them). Furthermore, our research shows that in the start-up phase, revenues from passengers will vary widely because of discounts and roll-out hiccups (improperly installed antenna, overload of servers, etc.). NSR services revenues forecast is based on industry figures we've been able to gather through interviews and primary research for services on a per-unit basis (and again for all segments) which means that these may vary accordingly by region and by type of frequency (L- vs Ku-band).
- The equipment market is still very fragmented and prices are still high compared to annual revenues per antenna but there has been a fierce battle to bring it down substantially as more airlines have issued RFPs. Our data shows that over the past five years, this has come down by more than 40% for a typical Ku-band antenna system.
- Manufacturers of aeronautical equipment systems are making very little money in this if they remain pure players (thus your analysis is correct if it is strictly aimed at commercial airlines). Unless they have a large fleet to equip, they often have other government or business jet revenue streams or are part of a larger group where satellite connectivity is a 'must' for the company to eventually tap passenger revenues (and also gain more legs from R&D develop from other segments). Many have 'admitted' indirectly that they are unable to rely so far on revenues from aeronautical equipment and 'branched-out' into other products or services for maritime (OnAir) and land-mobile (Starling) platforms, if they have not been acquired (ARINC by Viasat) or considered throwing in the towel altogether (MELCO).
- Finally, there is a misconception that long-haul flights will close the business case for commercial in-flight connectivity. NSR has been evaluating this market for 10 years and we continue to believe that regional routes will gather more revenues due to the larger fleets, but this will also mean more equipment to be installed and that is where industry efforts (eg. volume discounts) should go to keep the trends we see going forward.