Tuesday, August 31, 2010

Aircell Hits 1,000-Aircraft Mark, But Who's Paying?

Aircell said today that it has installed its branded Gogo Inflight Internet service on its 1,000th aircraft, a Delta Air Lines DC-9 that will fly today from Detroit.

This is a landmark in inflight Wi Fi service by Aircell, which is by far the industry leader. Congratulations to Aircell. So far, airlines that have installed the system on domestic aircraft are American, Virgin America, Delta, AirTran, US Airways, United, Air Canada and Alaska.

But I have a few questions, which will be pursued here in the near future.

--Is this in fact a viable business? Aircell and individual airlines that have installed the ground-based system insist that it is, but no one has yet shown me any evidence that more than a small percentage of passengers on any given flight actually have been opting to pay the $9-$12 on average that a connection costs. Airlines, Aircell and third-party marketing interests have been offering copious discounts and frequent promotions for the service, but eventually the numbers have to add up to more than the current average of about 7 percent "take rate," that is, passengers who pay.

--Aircell has been impressively funded by venture capital. But who is actually paying -- Aircell or the airlines themselves -- to have the Aircell Gogo system installed on those airplanes? Aircell has told me that it costs an average of $100,000 per plane to install the system, and has said that in the initial growth phase it was subsidizing airlines. But I haven't yet got a straight answer about who's paying for how much of the installation-per-plane costs.

--Companies that supply inflight Wi Fi -- primarily Aircell in the U.S., and primarily OnAir, a satellite-based system, in Europe -- have found that passengers who do use the service mostly use it for e-mail and texting. The fuller range of Internet-browsing functions seems to be less in demand. If that is true, do limited systems like the one Continental Airlines is looking at, which will essentially just provide e-mail connections as part of the inflight-entertainment hookup, make more market sense?

As I said, questions that so far have not been answered.

Meanwhile, Aircell rolls along. Aircell's Gogo is now available on more than 3,800 flights daily, up from just 2,100 at this time last year. Roughly one-third of all mainline domestic aircraft now have the service.

Two weeks ago, incidentally, Aircell rebranded its Internet service for the business aviation market, formerly called Aircell High Speed Internet, as Gogo Biz Inflight Internet.

Aircell markets this system as being compact and lightweight enough to be used on almost any business aircraft. The system has been adopted by major business and private aircraft manufacturers including Cessna Aircraft Company, Dassault Falcon Jet, and Hawker Beechcraft, as well as major fractional and charter operators including Clay Lacy Aviation, Flight Options, XOJET and NetJets.

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5 comments:

Jared said...

One reason those of us who have tried GoGo in flight stick to email instead of more data intensive browsing is that the connection speed - at least on the couple of flights when I've bothered - is agonizingly slow. I'd be worried about downloading or sensing an email with a large attachment, let alone browsing the web. Watching streaming video would be out of the question.

JTS in Dallas said...

With the rising cost of airfare, checked bag fees, pay for lunch, buy a pillow, purchase a blanket, upgrade to aisle, upgrade to priority boarding, upgrade to exit row, upgrade to 'more leg room' (all at an additional cost), and let us not forget the possibility of "pay for restroom access". So.... You want me to pay for WiFi, too (?).

I am 5'x9" 180-pounds, and I can barely open my laptop to actually use it during flight. I have used GoGo service via free coupon in the past, and it is great for text email, and painfully slow for anything over 500-KB. There are bandwidth throttles in place (I understand the need to do so), but why throttle when there are only 3-5 people using in in-flight?

Imagine if the take rate was greater than 50% on any given flight (?). How sloowww would connections become.

sparky said...

When I fly, it's the only place left on the planet where I can't be reached and I kind of like that.

I received a coupon and used it on a recent flight via my blackberry(I wasn't about to try to open my laptop in the center seat). The service worked about as well as what I would see on the ground, but I'm against being nickel-and-dimed as it is and don't want to pay for it.

suburb101 said...

I am a frequent Southwest Airlines flyer. On a flight about 2 months ago I was reading Southwest's Spirit magazine and found an article that addressed their decision to go with a satellite based system as opposed to air-to-ground system (meaning Aircell's GOGO). Here are some of the comments in the article: "We went a different direction (meaning satellite based) so we could deliver the most robust in-flight Wi-Fi solution in the industry that can be tailored to meet our Customers specific needs." "This means the speeds at which you will soon be sending and receiving information in-flight is much faster than the air-to-ground technology installed on other carriers. It’s the difference between sitting in rush hour traffic and speeding past the congestion in the carpool lane."

When spending $100,000 + on a system (and poking holes in the aircraft) it is important to understand that air-to-ground systems have a small niche customer base; basically aircraft that are flying over the contiguous US and at altitudes above 10,000 feet. This system (air-to-ground) has to have enough people using and paying for the service to support the system financially. It is hard to see as being viable with just 7% of airline passenger’s logging on and paying. Remember when Aircell shut down their air-to-ground voice system? Will history repeat itself?

Satellite based systems have a customer base that not only includes aircraft but also many ground users in the US, Internationally and Oceanic which include companies, private individuals, governments, military etc. etc. This system has a wide customer base which means they have many users paying to keep the system financially profitable.

suburb101 said...

I am a frequent Southwest Airlines flyer. On a flight about 2 months ago I was reading Southwest's Spirit magazine and found an article that addressed their decision to go with a satellite based system as opposed to air-to-ground system (meaning Aircell's GOGO). Here are some of the comments in the article: "We went a different direction (meaning satellite based) so we could deliver the most robust in-flight Wi-Fi solution in the industry that can be tailored to meet our Customers specific needs." "This means the speeds at which you will soon be sending and receiving information in-flight is much faster than the air-to-ground technology installed on other carriers. It’s the difference between sitting in rush hour traffic and speeding past the congestion in the carpool lane."
When spending $100,000 + on a system (and poking holes in the aircraft) it is important to understand that air-to-ground systems have a small niche customer base; basically aircraft that are flying over the contiguous US and at altitudes above 10,000 feet. This system (air-to-ground) has to have enough people using and paying for the service to support the system financially. It is hard to see as being viable with just 7% of airline passenger’s logging on and paying. Remember when Aircell shut down their air-to-ground voice system? Will history repeat itself?
Satellite based systems have a customer base that not only includes aircraft but also many ground users in the US, Internationally and Oceanic which include companies, private individuals, governments, military etc. etc. This system has a wide customer base which means they have many users paying to keep the system financially profitable.