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Wednesday, October 1, 2003

Product Focus: In-Flight Entertainment

David Jensen

Few systems providers got hit harder financially than the in-flight entertainment (IFE) industry, as a result of 9/11, the severe acute respiratory syndrome (SARS) epidemic, and the worldwide economic slump. When airlines struggle financially or even face bankruptcy, acquiring cabin electronics becomes a low priority. As a result, IFE expenditure dropped by approximately 30 percent in just two years, ending in 2002.

Jerry Weltsh, senior analyst with Frost & Sullivan, describes some of the challenges the IFE industry faces, as well as some bright spots and promising technologies. In the United States, the primary challenge is the fact that the profitable airlines are the low-cost carriers (LCC), which are least likely to equip their narrowbody aircraft with IFE systems. "Southwest doesn’t use IFE," Weltsh says. "It has some 400 B737s with nothing [in IFE equipment] on them and, potentially, will have nothing on them."

Weltsh concedes that several factors might cause Southwest to consider some form of cabin entertainment. First, the carrier "has a nonstop flight from Phoenix to Providence [RI], and that’s a long distance without IFE," he says. And second, fellow LCC JetBlue may have set a new standard in low-cost service with live television in its fleet of Airbus A320s.

Indeed, Southwest is far from alone in the LLC market, and stiff competition may cause it to reconsider its no-IFE policy. IFE’s principal role is to help an airline differentiate itself from the competition. And JetBlue isn’t alone with live TV; Frontier Airlines and Canada’s WestJet also provide the service. Significantly, these airlines’ live TV service also shows that IFE isn’t exclusive to widebody long-haul aircraft.

Weltsh believes that, near term, the airborne television market will be confined largely to North America. The service’s 24-channel capacity would have difficulty satisfying the needs of Europe’s multilingual, multicultural air travel market, he says.

However, the non-U.S. major airline market does give IFE manufacturers and installers reason for optimism. These carriers have fared better than the U.S. majors in weathering the economic storm. Weltsh states, for example: "Now that it appears that SARS is under control, the Asian carriers are starting to come back."

Evidence exists to support Weltsh’s view. Both Air Macau and Dragonair posted strong growth this past summer, and the largest customer on Boeing’s order book is All Nippon Airways. The Japanese carrier also has ordered IFE equipment (digital file servers) from TEAC America, whose recent customers also include Air New Zealand, Qatar Airways and Air France.

The IFE retrofit market is probably at its lowest ebb, with many aircraft still in mothballs since 9/11. An Asian carrier, Malaysia Airlines, has provided one of the few recent IFE upgrade orders, to Matsushita Avionics Systems Corp., for the carrier’s fleet of Boeing 747-400s and B777s.

Although the IFE industry still struggles financially, new technologies keep evolving, particularly those that offer passenger e-mail and Internet access. Many airlines view connectivity as key to regaining business traveler revenues, which declined sharply after 9/11. United Airlines reported recently that business passengers "are beginning to return." Weltsh says upgrades to incorporate connectivity are offering some relief to the IFE retrofit market. As we reported in our September 2003 issue (page 26), European and Asian carriers, such as Lufthansa, British Airways and Japan Airlines, have signed on to Connexion by Boeing’s broadband service, and U.S. carriers, such as United and Continental, have ordered the less costly in-flight e-mail service from Tenzing and Verizon Airfone. According to Weltsh, all the principal IFE manufacturers–Matsushita, Thales Avionics-Inflight Systems, and Rockwell Collins Commercial Systems–offer high-end product lines that include connectivity capability.

Connexion by Boeing has been aggressive in making its broadband service global. It recently signed two agreements for satellite transponder capacity. Connexion has signed an agreement with Tokyo-based Space Communications Corp. for capacity in a satellite located at 144 degrees east, to serve the Asia-to-Europe routes, and with Eutelsat for Ku-band transponder accommodation in a satellite at 36 degrees east, covering areas of Europe and Asia.

But what Weltsh sees as the most useful IFE advancement for airlines in the near future is WiFi, or wireless fidelity. "With WiFi, each seat would have a receiving antenna, and all content is delivered wirelessly," he says. "You don’t have to wire each seat, which adds a lot of weight and requires a lot of installation time." UK and German aviation authorities certified a wireless LAN in May, after verifying that the system did not cause interference with the cockpit electronics.

Beyond the next few years, Weltsh foresees greater satellite delivery of IFE content. "Just as JetBlue gets its live television from satellites, so will airlines receive movies, which passengers can choose by just tuning into the right signal," he says.

"Of course, the issue here is bandwidth and infrastructure," Weltsh adds. "For satellite-delivered content, you need a whole new [IFE] system, and for that to occur, we’re talking five years plus."


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