As it Eyes Expansion, Gogo Says U.S. Market Share is Secure

by

PARIS — Airline broadband connectivity provider Gogo Inc. said the U.S. market is all but spoken for at this point and that Gogo’s market share is unassailable. The only unknown is which of the major competitors in the field will win how many aircraft outside North America.

Gogo repeated earlier forecasts of stunning growth, saying the $130,000 in annual revenue it receives per connected plane now is likely to rise to close to $1 million per plane in 20 years, with the total global addressable market for commercial aircraft doubling, according to aircraft manufacturer estimates.

The revenue potential, Gogo Chief Financial Officer Norman Smagley said, “is really big. Assume whatever percent market share you wish, it’s a really big number. To use the technical term, it’s like a gazillion dollars.”

In a Sept. 9 presentation to an investor conference organized by Bank of America Merrill Lynch, Smagley said Gogo sees no reason to consider merger/acquisition possibilities with its competitors.

“You can’t buy Panasonic, right? We wouldn’t want to buy ViaSat — they’re a satellite company and that’s not our business. GEE [Global Eagle Entertainment] is primarily a content company, so we’d be buying a big content company to get a small connectivity company,” Smagley said.

Chicago-based Gogo estimates it has a 66 percent share of the North American commercial airline market for connectivity, with 2,249 planes under contract — compared with 524 for GEE, 410 for Thales Live TV and 157 for Panasonic Avionics.

In business aviation, Gogo counts 3,170 aircraft in North America compared with 400 for ViaSat.

In late August, Gogo received U.S. Federal Aviation Administration approval for Gogo’s satellite-based 2Ku service after demonstrations on a test plane. Commercial roll-out starts in the coming weeks.

Gogo has said 2Ku, using a proprietary antenna design, will offer seven times the bandwidth of the company’s current service, or 70 megabits per second, a figure that climbs to 100 megabits per second when Gogo’s Ku-band satellite providers transition to high-throughput satellites (HTS).

Smagley said the move to high-throughput will require no change at Gogo or on Gogo-connected aircraft. “There is zero cost,” he said. “2Ku is designed to work with Ku-band satellites regardless of their technology. As Ku providers launch those HTS satellites, we just naturally get the benefit of increasing speed and capacity.”

Carlsbad, California-based ViaSat Inc., using its own Ka-band technology, is making a play in the airline market to complement the company’s established satellite consumer broadband service in the United States.

ViaSat points to Jet Blue as an airline demonstrating how fast satellite broadband can be, even on aircraft with users streaming high-definition video.

Gogo, which says its original air-to-ground technology is what brought the company to its dominance, is not impressed.

“There is no inherent advantage to their technology versus 2Ku,” Smagley said. “And as for reliability, they’re a single-satellite company. There’s no redundancy. If that satellite fails, the airline is out of business from a connectivity standpoint. The probability is low, but the risk is high. And if it does happen, you’re dead. We don’t see a lot of major airlines willing to take that risk.

“The Ku world is 180 birds flying. We’ve already experienced a satellite failure and we simply redirected to a nearby satellite, and service continued. ”

ViaSat has capacity on two less-powerful satellites in addition to its main asset, ViaSat-1, and expects to launch ViaSat-2 in late 2016 to complement ViaSat-1 and add both coverage and throughput.

Gogo’s business model in North America has been based on the company’s ownership of its air-to-ground network. As it moves abroad and introduces 2Ku, it will be renting lots more satellite capacity. But Smagley said the cost to the company will not increase, on a per-delivered-megabit basis, because 2Ku has double the spectrum use efficiency of the company’s current technology.

“Our bandwidth cost is one-half that of our competitors using standard Ku, so there are similar margins in leasing satellite capacity outside the U.S. compared to owning the network in the U.S.,” Smagley said.

Outside of North America, Gogo has 550 aircraft under contract of a global non-U.S. commercial airline fleet of some 11,000 planes. The company has said it expects revenue — which grew by more than 60 percent per year between 2009 and 2014, when it reached $408 million — will climb to around $500 million in 2015.

Gogo forecasts that in the longer term, airlines will account for 50 percent of the company’s revenue as cockpit and crew communications and automatic links between major aircraft systems and the ground grow to equal the revenue provided by connecting passengers.