-T / T / +T | Comment(s)

Wednesday, March 12, 2014

‘It’s Not Free?’: Making Money on In-flight Connectivity

Chelsea Bryan

Though Gogo and Row44 in-flight connectivity investments have fallen short of financial returns expectations — since passengers have been unwilling to pay for connectivity — Ku- and Ka-band deployment marches on. Meanwhile, both short and long haul aircraft are slated for upgrades with Inmarsat’s Global Xpress and GX aviation services, to provide more options and global high-speed broadband.
 
Inmarsat’s Miranda Mills, head of Aviation Services, said she could not reveal confirmed Global Xpress customers, but that they are eager to release the news. 
 
“Some [customers] are shyer than others. I share … frustrations with our service providers who are very keen to make announcements,” said Mills. 
 
Having ordered a fourth satellite from Boeing to secure the network, Mills was confident that Inmarsat will be able to handle the next wave of demand; the key challenge to satisfying customers, she said. In addition to the Global Xpress network, GX aviation services recently saw its first terminal complete design review under Honeywell. 
 
Mills said the ground network for Inmarsat’s first satellite has already been through testing as well. “We all need to listen and I think that something we need to get better at, as a group, is predicting what’s going to come up next … and be able to react, because the aviation world has become a little slow to react,” said Mills.
 
Gogo’s reaction to low profit lines and diving stock prices was has not, however, resulted in any new pricing strategies. “As far as free service, somebody has to pay the cost,” Anand Chari, Gogo’s executive vice president and chief technology officer, said. “We believe our airlines like receiving a check every month, rather than writing a check every month.” 
 
Chari, however, resisted claims that Gogo prefers airlines to passengers as customers. “We are trying to serve every passenger,” he said. Instead, Chari said that pricing is “demand based,” and that Gogo is looking at a range of services with different prices. 
 
The company is working with Panasonic, Inmarsat and Honeywell to instead put some of their service emphasis not any on free services, but on getting aircraft line-fit with connectivity to eradicate down time.
 
For the time, Gogo’s experience and fast broadband will keep them at the fore of the connectivity market, Chari hopes. He cited the 4.5 inch, circular disk antenna Ground-to-Air uses, which he said boasts operation advantages in spectral efficiency due to size and function. “That allows us to deliver our industry leading speeds and our cost structure that is far superior,” he said.
 
Unlike, Gogo, Row44 is embracing new business models in response to low initial connectivity profits. Row44’s CTO John Guidon has reacted to passenger’s transaction aversion by partnering with Southwest in North America to offer complementary live television, financed by sponsors, in addition to Wi-Fi that the airline and sponsors — not customers — foot the bill for. 
 
Panasonic Avionics and ViaSat have responded in like fashion, by keeping the bill off the passenger’s lap. David Bruner, vice president of global communications services at Panasonic Avionics Corporation, mentioned a partnership with United Airlines to not only provide Wi-Fi, but also a global live television system and choices for the level of connectivity the customer wants. 
 
Bruner noted, however, that even if customers are not paying, they are still hard to please. He said that while business travelers may send him emails saying, “I had a great experience today,” customers using live streaming rarely do.
 
Rather than just supplying some form of complementary service, however, Bruner says the solution is upping capacity. “Lots of capacity makes it cheaper. One of the hold backs in the market today has been that simply service is too expensive, so to move this business forward we need cheaper capacity,” he said, but how much cheaper is unclear. 
 
“We work very closely with the airlines to try to match expectations. United is trying to do something pretty radical in terms of providing choices in the marketplace for the type of service the customer wants,” said Bruner.
 
JetBlue and Southwest Airlines, which both recently launched complementary connectivity services, are working with ViaSat and Row44, respectively, to increase uptake and create value in the same way that Buchman described. Jamie Perry, director of product development at JetBlue Airways, said he conducted research on who would be willing to pay for access prior to launching Fly-Fi. 
 
“It became clear to us that paying for access wouldn’t be the way. The way to maximize the value is through scale, if you’re charging for access and limiting the uptake, you’re therefore limiting the access of potential customers,” Perry said. “That’s why we’re looking to continue offering some sort of free product, because we need the uptake to get partners.” 
 
Since the December 2013 Fly-Fi launch, which is now on 20 A320s with two more equipped per week, customers have been Tweeting, sending Facebook messages and interacting, which, according to Perry, has garnered interest from “well known brands,” though he didn’t mention who. “We’ll see if we can get some partnerships in place to help offset the costs,” he said.
 
Two products are responsible: Simply Surf, which includes everything except streaming video, and is free, and a product supporting streaming that costs $9 per hour. “We see a much lower rate on the paid,” Perry added. Overall, 130 out of 150 passengers connect and use the service on the Boston to San Francisco routes.
 
Angela Vargo, manager of in-flight product development at Southwest Airlines conducted similar research prior and found those same uptake numbers for free versus paid services. 
 
With average flight times of two hours on national routes, Southwest traditionally didn’t offer much Inflight Entertainment and Connectivity (IFE&C). When it became clear demand wouldn’t allow that policy, they chose a platform that would, according to Vargo, “serve our needs going forward.”
 
Southwest offers three services: a highly customizable solution with entertainment options including Wi-Fi and live TV, 19 channels of live television with expanding stations and on-demand video, and a texting product that costs customers $2-$8 per day per device.
 

Vargo said that while some have accused the prices of being too low to make profits, that remains to be seen. “Southwest prides itself on being simple and transparent with our customers. We didn’t want a complicated pricing structure … We’re shifting our focus form making money to providing value. If you create value, money will come,” she said. 

Live chat by BoldChat