Connexion by Boeing, a business unit of Boeing Co. that offers satellite broadband connectivity distributed through a Wi-Fi connection to laptops of airline passengers, learned a valuable lesson during the first year of operations, a Boeing executive said.

The services celebrated its one-year anniversary May 17, but Boeing needs to do a better job getting the word out about the service going forward, David Friedman, vice president of marketing and direct sales at Connexion by Boeing told Satellite News.

“The first thing we learned is just having a hotspot in the airplane does not necessarily guarantee success,” Friedman said. “We have to work with our airline partners on a variety of marketing programs to make sure the customer understands and knows about the service before they get on a plane. It seems so obvious, but we found a lot of passengers [do not use their laptops] because they don’t know the service is available.”

Connexion by Boeing hardware is currently installed on 62 airplanes that fly more than 100 daily routes. The company expects to have more than 100 planes installed with the hardware by the end of the year. And with the growing number of planes carrying the hardware, Connexion by Boeing is working diligently with the airline carriers that have deployed the service to get the word out.

“The way we look at it is both of us are wedded together to make sure the project is a success,” Friedman said. “Some things the airlines can do better than we can do. Some things we can do better than the airlines. For example, the airlines maintain frequent flyer lists. We know that in the first class and business cabins, there is a higher propensity to use the service for an entire flight mainly because there are power outlets in those cabin classes. So it makes sense for the airlines to do the direct marketing to their frequent flyer bases.”

Friedman said it would make more sense to focus marketing efforts in cities such as New York and Tokyo, which serve multiple airlines and have planes with the Connexion equipment arriving regularly. “It makes sense for Connexion by Boeing to provide an overarching campaign in those cities, either a direct marketing, advertising or public relations campaign, or a combination of the three,” he said. “So the issue is really to look at each market and each airline and determine the best approach to figure out how to spend our respective resources.”

Early Success

Despite some early issues of getting the word out, the market is opening up nicely from Connexion’s perspective. Freidman declined to give specific financial company details, citing competitive reasons, but he offered a broad view.

“We’ve had tens of thousands of users since we introduced Connexion by Boeing to the marketplace last May and expect to be profitable in the 2008 timeframe,” Friedman said.

One metric that Friedman did offer is the reuse rates of the service, which have exceeded company expectation thus far. “We learned that people are repeat-using the service based upon our customer satisfaction surveys as well as looking at the customers that are using the service today,” Freidman said. “We see about 25 percent of passengers reusing our service, which is extremely high and is better than our expectations. We figured the reuse rate [at this stage of deployment] would be below 20 percent.”

Friedman also offered some anecdotal evidence regarding the number of people using the service on the routes that it is available. “We know there are good routes and not so good routes,” Freidman said. “For example, you have communities of interest between high-tech cities where there is high Intranet penetration. We know SAS indicated that some of the cities that have extremely high use of the service like New York, Beijing and Tokyo”

In one case from Copenhagen to Seattle, the number of passengers using the service was in the high 30s, Friedman said. “On other routes where it is not necessarily a high-tech city or does not have a large community of interest between technical companies, service usage is not as strong but that is okay because this is for intranet and virtual private network access. That is the basic target initially,” he said.

Growing The Market

While the corporate user has been the focus at the time the service launched, the company will be looking to reach the leisure traveler in the future. Connexion by Boeing took the first step in broadening its appeal beyond the business traveler by launching a television service.

Beginning this summer, four television channels will be delivered directly to Connexion by Boeing customers aboard select flights on Singapore Airlines, then to other airlines that have the Connexion service later this year. The channels include: BBC World, EuroNews, Eurosportnews and either CNBC, CNBC Europe, CNBC Asia or MSNBC, depending on where a flight originates.

Freidman said there is no limit to the number of channels that can be offered and the addition of television service is not expected to degrade the connections by data users of the Connexion service. He added that Connexion by Boeing would expand its entertainment service based on the reception it receives in the market. And given the growing number of people taking laptops on trips, the potential for using Connexion as an entertainment option by passengers certainly is there.

“I also see more people taking their computers onboard,” Freidman said, “When my children, aged 16 and 19 travel, they take their laptops with them. Many of their friends also carry laptops or other converged devices with them. So we will see an increase in usage from what we call ‘I-lifestylers’, who want to be able to be entertained and remain connected to each other through e-mail or” Instant Messaging.

And it is not just laptops that will be the device that keeps passengers connected. Freidman noted that Connexion is looking at other devices, such as mobile smart phones, personal digital assistants such as Research In Motion‘s Blackberry, and media devices like Sony‘s Playstation Portable as potential future devices that can access the Connexion service.

Cracking The U.S. Market

The use of other media devices and the growing number of so-called I-lifestylers could be the key to seeing Connexion by Boeing serving the potentially lucrative U.S. market. The service right now is deployed across nine airlines that are based in Europe or Asia.

To date, no U.S. carrier has adopted the service, even though the service was conceived with the U.S. market in mind and three domestic carriers, United, American Airlines and Delta. These airlines originally announced they would help fund the development of the Connexion service, but following the terrorist attacks of Sept. 11, 2001, all three withdrew their funding commitments.

“The U.S. market continues to be a very challenging environment,” Freidman said, referring to the widely reported financial struggles of the U.S. airline industry since 9/11. “The good news is that U.S.-based airlines remain very interested in the Connexion service and we are in various discussions with a number of them right now.”

Freidman declined to name specific carriers that are looking at the service. A United spokeswoman declined to be interviewed for this story. Delta and Jet Blue did not return phone calls seeking comment.

A spokeswoman from Southwest Airlines, which has managed to remain profitable despite the overall downturn in the U.S. airline market, told Satellite News, “We always keep a close eye on in-flight capabilities, but we always look at cost first, so we don’t have any plans to make a move” toward offering in-flight broadband services.”

There is growing market potential, according to Analyst Robert Mann, president of R.W. Mann & Co. Inc. “What you are really waiting for is the re-equipment cycle to begin for U.S. carriers because these things make sense to install out of the box as opposed to try and retrofit on existing aircraft,” Mann told Satellite News. “The negating factor in the U.S. is that no major U.S. carrier is in a position to in effect initiate that re-equipment cycle. The financial capacity simply is not there. The marketplace clearly wants the service, but there is no compelling business case at this moment to initiate the re-equipment cycle.

“I suspect when you see carriers actually start earning, start paying down debt, start repairing balance sheets and start looking at re-equipping, that is where Boeing will be very successful in placing platforms in the U.S. carrier market,” Mann added.

And for discount airlines like Southwest and Jet Blue, the bottom line on whether this service is deployed comes down to the bottom line. “Southwest has a huge new generation fleet,” Mann noted. “To date, they have not placed a bet on this kind of service. The network carriers who have historically relied upon corporate/business traveler for the majority of revenues are the places where this service is going to make the most sense. This doesn’t preclude [a discount carrier from deploying this kind of service], but the business case is harder to make when you have frequent price-seeking passengers as opposed to frequent service-seeking passengers.”

–Gregory Twachtman

(David Friedman, Connexion By Boeing, 949/790-1503; Robert Mann, R.W. Mann & Co., 516/944-0900)