Gogo CEO Oakleigh Thorne discussed changes he sees coming to in-flight connectivity business models for commercial airlines during a fourth quarter and 2019 earnings call on March 13. Photo: Gogo
During a 2019 year end and fourth quarter earnings call March 13, Gogo CEO Oakleigh Thorne outlined future changes he sees coming to the business models his company uses to provide in-flight internet access to airline passengers and flight crews.
Equipment installation data published by Gogo showed a total of 3,234 commercial airliners connected to its network with a backlog of nearly 950 aircraft awaiting 2Ku connectivity. Thorne extensively discussed how he sees dynamics on the commercial airline side of the in-flight connectivity business changing in the near future.
“The issue in the commercial aviation IFC space is that there are too many competitors and nobody yet has enough scale to build a sustainable business for the long-term,” Thorne said, adding that he believes consolidation will occur specifically within the commercial airline in-flight connectivity industry.
On the 10-K form filed by Gogo, the company lists all of its key competitors looking to supply connectivity for commercial aviation to include “Global Eagle Entertainment Inc., Inmarsat, SITAONAIR, Panasonic Avionics Corp., Collins Aerospace, Thales, Viasat and Safran (formerly known as Zodiac Inflight Innovations).”
What Thorne sees changing specifically is more airlines looking to offer access to internet for passengers free of charge. At the same time, there are changes coming to the way that his company pays satellite operators for the capacity they need to connect aircraft featuring their modems and antennas flying around the world.
The typical business model in use today by Gogo and its competitors is to have the satellite operator sell capacity to the aviation connectivity service provider. Airlines then have to pay to install the connectivity equipment on their aircraft along with the bandwidth used by each of their connected aircraft on a monthly basis. Equipment required to enable Gogo connectivity includes an antenna designed for its 2Ku or air to ground network and an in-cabin Wi-Fi network with servers, modems, wireless access points and airline/aircraft type specific software.
Thorne discussed Delta Air Lines’ intentions to eventually provide IFC free of charge to passengers as an example of how he sees the airline connected aircraft business model changing.
“Under today's turnkey contract, we subsidized the installation of Delta's jets, we charged Delta's passengers for connectivity, and then we paid Delta a royalty for access to their aircraft. In a free model, that will completely change and assuming we come to terms, Delta would pay for equipment and pay us for passenger connectivity. However, as Delta will now have to pay for connectivity, Delta will want to make sure it is getting competitive pricing and competitive service levels; hence may want to move to a multi-supplier model for domestic mainline aircraft,” Thorne said.
Delta CEO Ed Bastian said during his keynote speech at the 2020 CES event that “Wi-Fi should be free on all flights” and has stated in several public appearances over the last year that it's the technology rather than the utility bill that has prevented them from offering it for free in the past. Once they do cross over to a free model, Delta, like any other airline that makes this change, expects the number of passengers using the service to jump significantly to a level at which today’s in-flight connectivity networks cannot provide support, with as many as 100 passengers or more potentially connecting to an in-flight network.
Gogo's CEO said during the 2019 earnings call that he would allow Delta to make its own announcement, however, the carrier's chief executive has recently stated in several public appearances that he wants to make connectivity free for passengers. Gogo believes this will also drive other airlines to adopt free models as well, leading to changes in how they provide services to operators. Photo: Delta Air Lines
However, as Gogo and its competitors develop and establish next generation networks, that level of capacity and bandwidth will be available. Thorne also said he believes the emergence of non-geostationary satellites (NGSOs) in the future will allow the open architecture of Gogo’s 2Ku antenna to become more attractive to airlines who want to be able to switch networks as faster speeds and better performance becomes available.
“As we studied the most frustrating aspects of in-flight connectivity to passengers, many of them are a result of the high latency inherent [with] geostationary satellites," Thorne said. "NGSOs such as medium earth orbit satellites, MEOs, and low earth orbit satellites, LEOs, are much closer to Earth, the packets from the teleport to the satellite to the aircraft travel a much shorter distance, hence arrive much faster than with a GEO satellite."
Lab testing by Gogo engineers has shown that complex webpages could be downloaded three times faster in-flight over a MEO satellite versus a GEO satellite. Among the applications Thorne said could also benefit from speedier MEO and LEO satellite consultations in the future are virtual private networks, gaming and chatting applications.
SES, the satellite operator that provides capacity to Gogo, currently plans to launch seven new satellites for its 03b mPOWER MEO constellation by next year. The new constellation will have 30,000 fully-shapeable and steerable beams that can be maneuvered in real time to adjust to changing bandwidth needs.
Thorne said Gogo plans on demonstrating its 2Ku antenna’s ability to connect to MEO and LEO constellations in the future. When Gogo first started to expand beyond air to ground and moved to satellite-based IFC, they became a re-seller of their competitor’s networks under what he called a “network ownership model” during the call.
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“In the network ownership model, we must buy capacity wherever our airlines fly, and we pay for it no matter how little we use it. The new trend is that some satellite operators are developing enough of their own coverage that they can begin to offer us a managed service where we buy by the drink instead of in bulk. This model has the benefits of reducing our fixed costs, increasing the burstable capacity we can bring to airlines improving our capacity utilization, and enabling us to tailor solutions to individual airlines needs,” Thorne said.
Among the future research and development initiatives at Gogo are a fully electronic phased array antenna and its 5G network that is expected to become available in 2021.