Airlines operate in an increasingly competitive market and in-flight connectivity could become a key method of gaining passenger loyalty. A number of airlines are now looking to strike deals to bring state-of-the-art connectivity systems on planes. The good news for the satellite industry is that these systems will be based on satellite. Major airlines such as Lufthansa, JetBlue, Gulf Air and Continental Airlines have already signalled their intentions in this area, and others are likely to follow in the near future.
In a battle for cost-conscious, tech-savvy passengers, airlines have faced increasing pressure to explore innovative ways to capture their imagination. While pricing will always be central to the air traveller’s choice of airline, a new parameter has emerged. Customers are now paying attention to airlines that have made the leap to offer in-flight connectivity and entertainment systems.
These new and improved connectivity systems based on satellite technology represent millions of dollars worth of investments, carrying a huge potential growth market for satellite. According to David Bruner, vice president for Panasonic Avionics Corporation’s Global Communications Services, a tipping point has now been reached, with many airlines now ready to make the leap.
“We are about 12 to 15 deals today. You will see some of those that have already committed to add more aircraft to their existing commitments. You will probably see another 15 to 20 airlines making that commitment over the next 12 months. But, I think you will also see as many committed to our competitors. I can see 30 or more airlines making a commitment over that time. The top 50 to 60 airlines in the world will all have made a decision, at least in terms of the fleets they expect to operate over the next 10 years or so and are the work horses of their fleet. You are going to see a very exciting year, announcement after announcement, and the announcement won’t be news any more, but more what is being installed and how many aircraft you have been operating,” says Bruner.
“Must-Have” Services
Bill Sullivan, director of broadband systems for ViaSat, says that airlines are showing a considerable amount of interest in these services, “Scott Kirby, the CEO of US Air recently said that these services are going to be a ‘must have’ for airlines. There are a lot of RFPs and RFIs floating around. Pretty much all of the major airlines and even the second tier airlines are interested in this,” he says.
However, while many are predicting a strong deal flow in the next year, Tim Farrar, president, TMF Associates says outside factors could prevent some deals taking place. “Airlines know how to be prepared to make an investment in the technology, and they can’t get it for free anymore. Thus, dealflow will depend on the price of fuel — airlines will be capital constrained if oil remains at $100 per barrel. Only airlines that need to catch-up (i.e. in the United States) will feel very pressed to make an urgent decision in these circumstances.”
While the market is undoubtedly heating up with many deals involving commercial airlines and the likes of Inmarsat, ViaSat and Panasonic, in-flight connectivity has traditionally been a tough market to crack. Boeing’s Connexion service learned this lesson in the early part of the decade. Boeing launched the service in 2004, but phased it out two years later.
How will things be different this time? According to David Coiley, head of Inmarsat’s aeronautical business, the Connexion service was ahead of its time, with two major issues leading to the service’s demise. “It required a high uptake from passengers to close its business case, which is directly linked to the fact its costs were high. I know other Ku-band providers have resolved these issues. I think the key thing going forward is that people have to be much more realistic regarding the critical passenger uptake that they required. Just counting the numbers of passengers who carry a laptop onto the aircraft may not be the most accurate way of assuming all of those players will want to connect,” he says.
The airline passenger’s needs have also recently changed. “I think with Connexion, only 40-50 percent of people had a laptop, but if you look at now, the number of people who have laptops, tablets and smartphones has really ramped up. It is going to be remarkably different in terms of customers who are able to access these services,” says Coiley.
We weren’t convinced about the sustainability of the business case (for Connexion) and we were worried we would be left with antennas on our aircraft where there is no service. That is what happened to some of the other carriers. The business model has to be sustainable. If we offer passengers a service, they expect it to remain.—Patrick Brannelly, Emirates Airlines
Bruner hailed the trailblazing efforts by Boeing, saying the company did a lot of things right and that deep pockets and patience were needed to be successful, as well as the ability to install the system quicker on aircraft. “It is usually a five-year effort. It takes a long time to get a critical mass in terms of this business. You are not making money; you are losing money during that period of time. So the question is how you survive it. We have different technologies compared with Boeing that allow us to scale this more effectively and manage the demand based on the number of airlines. Whether it is 1, 20, 50 or 500 airplanes, we can scale the system more efficiently,” says Bruner. “You don’t need an over-commitment of satellite resources the way that Connexion did. That is a technology change that we implemented to specifically help us scale the business more efficiently and in smaller increments, so we would not spend as much on capacity as they did.”
While the deal flow between the airlines and the satellite sector is likely to ramp-up during the next year, some airlines such as Lufthansa, JetBlue and SouthWest Airlines have already made significant moves. German airline Lufthansa already launched its FlyNet service and has rolled out the service onto 25 of its aircraft. It has opened up the service to all North American routes and is starting to roll out service on Middle East routes. Bernhardt Seiter, director of Lufthansa’s Product Competence Center says the company’s plan is on schedule.
The airline is in a unique position to discuss the challenges regarding launching such a service. Seiter says the key lessons so far have come in terms of user behavior and that it has changed from the time when Boeing launched Connexion. “The device used back then was mainly a laptop; it was mainly just email. Today, we are seeing all kinds of devices, iPads, IPhones etc. The bandwidth being consumed is now a lot higher. People are doing video streaming. There is much more different usage patterns than there were a couple of years ago. The maximum amount of users we had on any given flight was 100 users. The average is considerably lower. There are certain routes that seem to have peak usage. For example, flights to Detroit have a very high usage. It also depends on the flight time. Night flights have very low usage. Ku-band has been scalable so usage has not proved an issue. We only have 25 aircraft equipped so we are not testing the system to its limit yet,” he says.
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