Airlines Ready to Jump into Connectivity Battle

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. 

Not Convinced by Connexion

Emirates Airlines is launching GPRS service this year on its aircraft. Patrick Brannelly, Emirates Airlines’ vice president of Corporate Communications Product, Publishing, Digital and Events explains that the operator decided not to go with the Connexion service because it was not convinced about the sustainability of the business case. “We were worried we would be left with antennas and no service on our aircraft. That is what happened to some of the other carriers. If we offer passengers a service, they expect it to remain. When we rejected the Connexion by Boeing product we analyzed what people wanted to use the product for, a lot of it was to keep informed on what was going on down below. So we developed a news system, and since 1993 we’ve transmitted live news headlines over satellite to all our flights, updated throughout the flight, so passengers know exactly what is going on,” he says.

Emirates Airlines is a long-standing customer of Inmarsat and with Inmarsat launching its much-vaunted Global Xpress Ka-band system, the airline could prove a potentially valuable customer here. “They do not need the airlines for the viability of those satellites, but it is an extra revenue stream. This means the business model is sweeter for both parties. We are piggybacking on that technology. If all the commercial airlines of the world got together and said ‘lets launch our own network of satellites,’ you are probably talking about $2 billion of investment, and I don’t think all the airlines in the world would be able to come up with the cash for these satellites. We have to rely on existing infrastructure in reality,” Brannelly says.

Airlines around the world are examining their options and it is perhaps not a case that one technology will win out, according to Coiley who believes that the market could be big enough to support a number of different solutions. “The in-flight passenger market is also littered with examples of passengers saying one thing in surveys and doing another thing when they get on an aircraft. On a global basis, one has to be very cautious on what works for U.S. domestic airlines, because it’s not necessarily going to work for airlines that are flying across the Atlantic, the Pacific Ocean or regionally within Asia,” Coiley says. 

Ka- Versus Ku-Band

Airlines such as Lufthansa have chosen to go with a solution based on Ku-band, while other airlines have favored going with a solution based on Ka-band systems. Brannelly says that Emirates is leaning much more towards Ka-band. “Ku-band is an expensive solution in terms of weight and infrastructure on the aircraft. We haven’t dismissed it. What we have seen in the past when Boeing did it with Connexion is that they installed all the technology and had very good connections, but the company lost money. You have the technical solution and then you have the commercial solution. I am still not 100 percent convinced that this new solution, even with the commercial economics that have been applied to it, is commercially viable,” he says.

JetBlue Airways is another airline that is looking to gain an early mover advantage. The company signed a deal with ViaSat to deploy a Ka-band aviation broadband network. The U.S. airline is adopting a different strategy from the likes of Lufthansa and betting that increased capabilities based on Ka-band satellites could be of more benefit in the long run.

Robin Hayes, JetBlue’s chief commercial officer says the service is unlikely to launch until the second or third quarter of next year. JetBlue has deliberately waited for Ka-band satellites to come online before looking to launch in-flight connectivity services. Hayes admits the airline is “incredibly excited” about developing connectivity services based on Ka-band. “We think this is the next biggest breakthrough. It has been hard at times, particularly when you see other airlines offering connectivity, and we have had a lot of questions from customers on this, but we believe waiting has been the right thing to do,” he says.

JetBlue has aimed to be one of the innovators here. The U.S. carrier already offers free Live TV to passengers and believes offering in-flight connectivity services on Ka-band sits well with what the airline is trying to achieve. “We have very high standards from a product perspective. If we had just taken what other airlines were doing and done the same thing, I don’t think it would have met the JetBlue test of doing things differently,” he says. “We wanted the option to offer a more attractive price point to customers and to provide a great experience. We have a challenging customer demographic. We are probably the most well-known social media airline in the world and the thought that our customers could go online and not be able to access things like YouTube and download videos did not fit with the experience that we wanted to give our customers.”

However, with the service unlikely to be available until mid-2012, there is still plenty of work to be done ahead of launch. Jeff Frisco, chief technology officer of LiveTV, a subsidiary of JetBlue, and a provider of satellite delivered entertainment to commercial aircraft, outlined some of the work ahead during the next few months. “Firstly, on the ViaSat side, they will be launching a satellite which really changes the economics of the offering. The satellite launches later this year. That will be an enabling step. It reminds me of when DirecTV put up their first satellite. After that, we have a Ka-band antenna and getting that through all the certifications of the FAA and onto the aircraft. It takes a lead-time to get that prototype done. We have been putting satellite antennas on the top of aircraft for many years but it takes a fairly concerted effort to get the approvals — once you get the approvals in place, you go into production. Those are the two main challenges we face right now,” says Frisco.

Technology vendors have different opinions on the bandwidth debate. Panasonic, which bases its solution on Ku-band, says improvements in Ku-band technology should not be underestimated. “You are also going to see dramatic improvements in Ku-band. Modulation improvements as well as higher powered satellites going up throughout the world, which allows us to use fewer beams, and get more efficient on a gradual basis. You will have to compare the potential improvements here with the improvements in Ka-band to determine if there is a tipping point towards Ka-band, but Ka-band brings some really technical challenges. The atmospheric challenges are quite extreme. There could be problems in providing a highly reliable service on aircraft or any type of vessel. Ku-band is much less resistive to atmosphere, and even is impacted by weather. We have some good challenges from a technical standpoint,” says Bruner

Unsurprisingly, others take a different view with Coiley saying Ka-band has some significant advantages, considering that the frequency has fewer limitations than others and offers higher data throughput. All things being equal, the result is that the cost per megabyte is lower. 

Better Economics

Sullivan points to what he sees as the better economics of Ka-band. “In the United States, we have much lower cost bandwidth available to the airlines. It is essentially a factor of 10 cheaper than the Ku-band bandwidth to the aircraft. So, we can support more bandwidth intensive services with economics that make sense to the airlines. An airline can provide a modest broadband service bundled with other services they already sell to passengers, or they could even offer the service for free. An airline could also sell a premium service with higher service level. It gives them an opportunity to offer the service in a way that makes sense for them. You can also make money as well. With L-band you can’t really provide broadband, and with our advanced Ka-band satellites, an airline can support passenger engagement to a much a greater degree than can be provided with Ku-band services, whether it is ours or someone else’s.”

One of the other issues facing airlines is what services they will look to offer in the future. The options range from mobile connectivity all the way to full broadband and TV services. Bruner says he expects most airlines to offer mobile phone connectivity in the not too distant future, and that the real decisions will come in terms of the types of Internet access that will be offered to passengers. “We are probably seeing (that) two-thirds to three-quarters of the airlines have made the decision to have Internet access and have that capability on board. Of that 75 percent, 60 percent or more are saying that they need to have true broadband, which to us means in the multiple megabits per second capability,” he says.

While demand for these services may drive some business models, the return on investment for these offerings is still unclear, Farrar says. “The key lesson is that airlines shouldn’t expect passengers to pay for everything, and certainly shouldn’t expect to make a profit on connectivity. Airlines have to be prepared to make an investment in equipping their planes, just like they do in comfortable seats and in-flight entertainment.”

Brannelly admits that Emirates Airlines says the operator is under no illusion that it will not make money directly from offering services, and while it may be unbelievable that the airline would not offer these services for profit, these services establish direct routes to other sources of revenue. “We don’t make a profit out of the great wines we serve. We don’t make profit out of the food we serve, or the incredible mood lighting or starlit ceilings on our aircraft. It is difficult to quantify, but improving the overall passenger experience has been one of the factors in Emirates success. If customers are happy, they will come and fly with us again. That’s where we make money,” he says.

It promises to be an exciting year ahead as airlines look to deploy the latest technology. Time will tell whether Ka- or Ku-band solutions will make the greatest impact, but one thing is certain, the satellite industry is likely to benefit from a flurry of deals. The post-Connexion era has truly started.