2Ku the Linchpin of Gogo’s Global Expansion
[Via Satellite 07-01-2015] Gogo is optimistic it will stay on top of the In-Flight Connectivity (IFC) market with its satellite-enabled 2Ku capability raising the ante for global connectivity. Speaking at the Nasdaq Investor Program in London on June 30, Gogo Chief Executive Officer Michael Small was heavy handed about the company’s confidence in its upcoming satellite solution.
“We developed [Air-to-Ground] ATG, that was clearly the winner in the U.S. and now we think 2Ku is going to be the winner on a global basis,” said Small. Gogo currently has more than 2,300 commercial aircraft equipped with its services on eight major airlines and 6,700 business aircraft flying with its solutions, including a deal with major bizjet operator NetJets.
Gogo built its business in North America with primarily terrestrial ATG connectivity, but has come out backing satellite connectivity as the key to expanding the market worldwide. “In most of the world you don’t have a contiguous land mass where so much of the air traffic stays over the land like in the U.S., so there is going to be a relatively limited number of places where air to ground works. It may work in Europe, it may work in China, it may work in India, but almost for sure satellite will be the dominant technology globally,” Small reiterated.
To feed into this global market, Gogo is in the process of launching 2Ku, which promises speeds of up 70 Mbps in flight through Ku-band wide and spot-beam satellites, according to the company. These speeds may increase even further as High Throughput Satellites [HTS] begin to launch in the next few years. “When High Throughput Satellites start being deployed in ’16, ’17 and ’18, that will take us to 100 Mbps per second, so we actually see this capability getting to 100 Mbps this decade,” said Small.
Gogo also believes the technology, which will be flying on the company’s test plane soon and will make its way onto U.S. and Rest of World (ROW) launch customers by year end, will offer airlines a 50 percent cost savings over current Ku solutions.
“The 2Ku solution will be installed this year on Aeromexico and Virgin Atlantic and we think it achieves globally what ATG did in the U.S.: it meets the cost, coverage, capacity and reliability requirements that are really going to make this business work,” said Small. “You haven’t really seen much in Europe or in the rest of the world in the way of connectivity because until now they really haven’t had a technical solution that’s done it — we think 2Ku will.”
The company also believes that as the solution is deployed and installations pick up — with 500 aircraft already on back order for the 2Ku solution — that adoption will reflect that of ATG.
“The economic financial profile of the rest of the world business will mirror that of the North American commercial aviation business, a similar profile and trajectory. As we begin to achieve scale in the rest of the world you’ll begin to see similar performance there as you see in North America,” said Norman Smagley, Gogo executive vice president and chief financial officer.
The numbers seem to agree with the executives, as the company recently raised its 2015 Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) to the high end of its previously announced $15 to $25 million range during a June 25 analyst meeting, as reported by analyst group UBS. While passenger connectivity often takes center stage, Gogo sees these upped numbers driven by operational needs in the aerospace market as opposed to exclusive customer demand.
“Management suggested that just as the Internet of Things (IoT) and the connected car will expand the addressable market for mobile communications on the ground, revenues from the connected plane (in-flight services, maintenance, flight operations, aircraft systems, etc.) will eventually outstrip those from passenger connectivity,” John Hodulik, CFA at UBS reported.
Still, Small was careful to note that despite the advantages of 2Ku, an ATG solution is still the most economical way to provide connectivity where possible. The company expects that small aircraft flying domestic routes over land masses will likely still be very happy with ATG, but the company requires more spectrum to continue expanding ATG operations. The Federal Communication Commission’s (FCC) 14 GHz auction, which has been threatening to take place for the last year and is now tentatively scheduled for sometime in late 2016, could open the to door a more robust ATG landscape. And Small is not shy to admit that to continue expansion to the projected 30,000 commercial aircraft over the next decade, the company will need to field every option.
“Aviation is the brain surgery of telecommunications. There are so many unique requirements of aviation, the safety and the security and the global logistics and even that the airplanes last so long they’re often 30, 40 years old, so there’s lots of pre-Internet protocol equipment on these planes,” said Small. “We have to create a pretty robust ecosystem to enable all these benefits; there are a lot of fixed-costs, a lot of barriers to entry, a lot of problems to solve to service aviation.”