In large part, the rise in spending stems from the move away from the old overhead distributed services to a new generation of seatback interactive systems. Going back to the early days in 1990, airlines were investing just $1,800 per seat for their systems. Five years later that had risen to $6,000. By the year 2000, the cost is expected to reach $10,000. Typically that equates to a spend of around $3-5 million per aircraft on such technology - or around some $100 million across the fleet - with the investment written off over over three to five years.
The numbers may be helped by that fact that much of the technology is finally working. Airlines that have persevered are now seeing reliability levels improving and passenger satisfaction on the increase. Singapore Airlines (SIA), which has always been at the forefront of interactive IFE developments, concedes that it had considerable problems with the technology at the outset. SIA introduced its interactive IFE programme two years ago, based on Matsushita's System 2000E hardware and BT's Airline Interactive Services (ALIS) software. Initial reliability was at only 60%, but that climbed within month to 80% and is now better than 99%.
Virgin Atlantic and United Airlines, too, had initial interactive IFE disasters. While Virgin has had a more positive experience with its second generation system running off Matsushita hardware, United has been left badly bruised from its experience with GEC-Marconi InFlight Systems (GMIS) units on the Boeing 777. United still believes that an inability to deliver plagues the IFE industry and it will not make the jump back to interactive until it is sure the hardware is proven and reliable. Other carriers, too, have returned to basics until they are certain that interactivity can deliver the goods.
British Airways product development manager Ken Codrington admits that it, too, had "a pretty awful experience" of interactive IFE. The airline struggled for years to fulfil its interactive IFE dream with B/E Aerospace's (BEA) Multi-media Digital Distribution System (MDDS), but was forced to drop the supplier when the product failed to meet the reliability targets.
BA went back to basics and has now embarked on a phased approach with its new supplier, Rockwell Collins Passenger Systems. The first of the airline's long-haul aircraft was due to enter service in January with the Total Entertainment System, providing BA passengers throughout the aircraft with personal televisions and programming choice. For its part, Rockwell Collins says that it was prompted to move into the IFE world by airlines wanting the kind of systems reliability and integrity that it has long delivered through its core avionics systems business.
BA has had the chance to re-think its interactive IFE strategy. "Five years ago we had an IFE vision, but now we are looking at it to see if the vision is valid today. We are not going for the big bang approach, but a phased one," says Kevin George, senior manager interactive video. "In many ways we have been fortunate as we have had the opportunity to review our plans and rethink our strategy," he says.
George concedes, however, that BA is now behind the leading airline IFE innovators. "We can't ignore the fact that, while we pursued our [MDDS] interactive programme, other airlines have taken the lead. Our intention now is to establish a reliable, upgradable, platform and leapfrog our competitors, but only if passengers want the services," he says.
Although all is not perfect, interactive systems have improved rapidly even over the past year or so. "The industry has faced many challenges over the last few years. These are now recognised and being talked about. People are discussing how to work together as an industry and ensure that we don't face them again," says Patrick Brannelly, manager of passenger entertainment and communications at Emirates and current president of the WAEA. "I have never felt so confident. In the next five years reliability will no longer be an issue," he optimistically predicts.
Revenues remain weakNot only has interactive IFE been a high-risk strategy, but it has largely failed to deliver on its early promise as a lucrative money spinner. Those pioneers who had hoped that the systems would pay for themselves through new revenues have largely been disappointed. Instead, the real justification has come from enhancing the airline brand and passenger loyalty.
"The IFE industry has always produced hopelessly optimistic revenue forecasts so the current disappointment levels are high," Duncan Hilleary, founder of IFE specialist Spafax Airline Network told an industry event last year. Onboard shopping, advertising, communication services, video games, gambling and pay per view or audio/video-on-demand were all expected to bring in substantial revenue.
Swissair was the first airline to discover that this was not to be the case when it fitted its Boeing 747s and MD-11s with the Interactive Flight Technologies (IFT) IFEN system, which provides passengers with audio and video on-demand, computer games and gambling. The airline's original contract with IFT was based on the purchase price from the systems being financed out of revenues from passenger use.
Revenues from both gambling and pay-per-view were significantly less than assumed and have not substantially increased over the past year. All video programming in Swissair's first and business class cabins is free of charge, with the on-demand function allowing passengers to stop and start films when they wish. In the three aircraft fitted with the interactive system in economy class, Swissair is charging passengers for new blockbuster movies but the airline's experience has not been positive. Take-up in economy class has been "lousy", according to Karl Laasner, the airline's manager of in-flight communications and telematics.
Pay-per-view is not "the golden goose" that everyone expected it to be, he says. And video-on-demand is an expensive business - costing $6,000-10,000 per movie in compression costs, even before the licensing fees. Swissair is spending "far too much on IFE", concedes Laasner, adding that the costs associated with video-on-demand need to be addressed.
Brinder Bhatia, senior vice-president at leading interactive IFE hardware manufacturer Matsushita, agrees. There is a danger that the premature escalation of costs associated with video-on-demand could "-kill the goose that could lay the proverbial golden egg", he suggests. "We would like to appeal to the movie studios and film distributors to exercise restraint in implementing pay-per-view royalty guidelines to audio/video-on-demand . The airline IFE industry needs time to mature such systems and the widespread passenger acceptance, usage and expectations," he adds.
Despite its disappointing start, many in the industry remain confident that pay- per-view can provide airlines with a good revenue stream. Few believe, however, that the same can be said for inflight gambling, or gaming as a lot of airlines prefer to call it. Swissair, which was the first to introduce gambling, has been disappointed with passenger use. Inflight gambling supporters, however, have pointed to the fact that the Swiss are not renowned gamblers, with gaming heavily restricted in Switzerland, and Swissair itself has been restricted in the type of games it can offer under national regulations. So canny were the Swissair passengers, that on the first transatlantic flight to launch gaming, the carrier is believed to have actually ended up losing money.
While Lauda Air and SIA have also found that play levels are below expectation, the wagers are higher. "We under-estimated how much passengers would spend. We expected them to spend in the region of $25-30, but they are spending more than this," says Walter Crawford, president of InterGame, which supplies the gambling software to Lauda.
The revenues from inflight shopping have also yet to materialise, according to Malaysia Airlines (MAS), while advertising revenue has fallen short of expectations. "We have made an enormous investment in IFE, but we are not holding our breath regarding a return on investment," says Azmil Hisham, product manager.
Far more important than revenue generation for MAS, however, is the passenger reaction to the programme. MAS has seen a sharp increase in passenger satisfaction since it launched its interactive IFE programme, which includes 12 video channels, 18 audio channels, Nintendo/PC games, a satellite news service updated through the flight, communication services and interactive shopping. In terms of passenger satisfaction, 78% of passengers rate films on the new system as good/excellent, compared with 46% using the overhead screen format; 78% rate music as good/excellent compared with 55%; while 77% consider the news service as good/excellent compared with 55%, according to research conducted by the airline. The larger the personal television screen, the greater the satisfaction, says MAS, which offers 26.4cm (10.4in) touchscreens in first/business class and 16.5cm in economy. Another IFE leader, Emirates, which in 1992 became the first airline to install personal televisions at every seat in all passenger classes, has invested more than $100 million in IFE since 1991. "We believe that this has been a good investment commercially," says airline chairman Sheikh Ahmed Al Maktoum. Installing television in every seat "-seemed to me the most effective solution to satisfy a passenger demand for better entertainment and a commercial demand to provide a critical product difference to set us apart from our competitors", he says. Emirates recognises that some of the promises made to airlines about revenue from interactive IFE have been over-estimated, but "-feels the indirect commercial value of better passenger yields as a result of good IFE will remain the largest source of revenue value," says Al Maktoum.
SIA has also used product differentiation rather than revenue generation to justify the cost of its KrisWorld IFE and communication package. The airline's latest product upgrade, introduced from September 1998, includes a 36cm personal video screen - the largest in the business -Êin first class and came at a time when Asian carriers were feeling the effects of the economic crisis. "The Asian crisis has affected all airlines in Asia, but we don't just compete with Asian airlines. Many of our chief competitors are based in Europe and the United States," said Michael Tan, executive vice president commercial, at the launch of the inflight product upgrade. "We have a long- term philosophy, not a short-term one. We have a customer-first philosophy - we want to offer a radically superior product," he says.
IFE is becoming increasingly important as a product differentiator and this trend will continue. Already, the leading interactive IFE airlines -ÊSIA, MAS, Emirates and Virgin - have successfully used their interactive IFE offerings in their advertising campaigns.
SIA has actually centred recent advertising campaigns around KrisWorld, billed as "The Biggest Show in the Sky". In its recent campaign, Virgin has also highlighted the 21 video channels, 10 Nintendo games, five PC games and seven audio channels "now showing" on the Virgin Odyssey system. That has been used compared with rival BA's IFE on the same routes, which up until the beginning of this year comprised an overhead mainscreen in economy class.
When BA announced that it would be offering a dozen video and audio channels via seatback televisions in economy class from 1999, Virgin was keen to point out that it has had such systems in the back of its aircraft for seven years and is already working on its latest interactive IFE product revamp.
IFE plays a crucial role in building the overall brand image of an airline, according to the results of last year's Passenger Inflight Entertainment Research (PIER '98), an independent survey using passenger feedback to compare IFE on airlines worldwide. Nearly 7,000 passengers were questioned for the study, in which Virgin Atlantic, SIA, Emirates and Swissair - all IFE innovators - came out top in terms of image. IFE can be a powerful tool for an airline to present itself clearly and consistently to an audience "-in a way which supports the philosophy, ideals and objectives of the company and its position in the marketplace", according to Tim Simmons of the Simmons Consultancy.
Simmons worked with BA on the rebranding of its IFE in 1997 when the airline introduced its new corporate identity. This required a complete redesign of the way in which the airline's IFE was branded, presented and packaged, he says. The result was Omnia, which is designed to offer something for everyone. "In the close-knit world of IFE, much of the product is common across the airlines. We all have Mr Bean, the same wildlife programmes, the same Hollywood blockbusters. What makes the difference are the bits between the programmes and it is here that anyone prepared to be bold, innovative and exciting will move ahead of the game and the competition," suggests Simmons.
The bottom line is that, even without the promised flow of new revenues and despite their cost, few can choose to ignore the competitive marketing edge that the new generation of interactive IFE can bring.
Source: Airline Business
