Providers See Different Destinations for Inflight Broadband Demand
PARIS — Airline broadband providers Gogo, Global Eagle Entertainment (GEE) and ViaSat disagreed on whether today’s aeronautical connectivity business, valued at less than $1 billion, will be hugely more valuable in the coming years as bandwidth demand by airlines for their own purposes dwarfs demand by passengers.
The unanswered question is who’s right? Gogo and GEE, which see the connected aircraft business growing to $30 billion or more in 20 years? Or ViaSat, which thinks passenger demand will remain the main driver of demand?
“We view this as a $30 billion industry,” said Michael Small, chief executive of Chicago-based Gogo, whose U.S.-based air-to-ground business is now expanding to include Ku-band satellites with Gogo’s new 2Ku aeronautical satellite antenna, and going global with satellite capacity worldwide. “The industry is not yet at the $1 billion mark, so there is huge growth.”
Gogo expects to report nearly $500 million in revenue in 2015, up from $37 million six years ago.
Addressing a debate organized Dec. 7 by the Macquarie Group investment bank, Small said 2Ku — starting with airline passengers, then moving to airline routing and aircraft-maintenance data — will permit higher-efficiency Ku-band satellite connections, leading to lower-cost megabits per second for passengers.
GEE, based in Marina Del Rey, California, has a dominant market share in the provision of film and other digital media to airlines and is now buying satellite capacity worldwide to provide broadband to passengers.
GEE Chief Executive Dave Davis agreed with Small that satellite connectivity ultimately will be viewed as indispensable to airlines as they seek to find operating efficiencies that, while small per flight, add up to big numbers. “I think the $30 billion estimates in the long run are realistic,” he said.
“The opportunity is huge because it’s so valuable to the airline,” Davis said. “Small improvements in aircraft routing, in fuel burn, drive huge dollar savings for the airlines. The installation and purchase of the [satellite communications] systems will be driven more by the operating savings.”
ViaSat Inc. of Carlsbad, California, comes at the market as a fixed and mobile broadband provider to the consumer market and to the U.S. Department of Defense, whose business with ViaSat has been growing in the past couple of years, unlike many defense sectors.
ViaSat has one large Ka-band satellite in orbit, another even larger one scheduled for launch in about a year and recently announced plans for a three-satellite constellation covering the globe, with each satellite generating more than 1 terabit per second of throughput.
ViaSat President and Chief Operating Officer Rick Baldridge said streaming video demand from passengers will be so large that it will overwhelm other uses, even assuming a fully connected aircraft sending and receiving large files on system health and flight optimization.
“We have several hundred aircraft flying for [the Defense Department], with top-secret-and-above security levels,” Baldridge said. “A lot of that turns out to be operational data. So yes, it is valuable, but it’s just an add-on business to the consumer business.
“We don’t believe we’re going to be able to extort much money out of the airlines for data that is in the same stream that is pulling data off the aircraft,” Baldridge said.
Baldridge declined to endorse the $30 billion figure but said broadband connectivity, and mobile broadband in particular, is in for enough growth that “we have put in a couple of billion dollars into this in the last few years and we plan to put in another couple of billion over the next five years. We do think it takes that kind of investment.”
Any industry growing this fast will attract new entrants. Absent from the Macquarie session were Panasonic Avionics, which is buying Ku-band satellite capacity worldwide for aeronautical and maritime markets; Thales LiveTV, a provider of Ku-band broadband; and Inmarsat, which is broadening its L-band narrowband mobile communications business with its Ka-band Global Xpress fleet.
London-based Inmarsat recently announced agreements with Lufthansa to equip Lufthansa’s European fleet with Global Xpress, and the company is building a Gogo-like air-to-ground network in Europe to handle aeronautical demand that cannot be satisfied solely by satellites given the density of European air traffic.
Small and Davis said they were still unclear about the Lufthansa-Inmarsat arrangement.
“I am not even sure whether this was a Global Xpress win, or an air-to-ground win, or how each of those weigh in,” Small said.
“I was frankly a little confused by the Lufthansa decision. I still don’t know exactly what it is,” Davis said. “Maybe all of us at this table thought we had won it at one point or another.”
All three appeared to agree that providing broadband to aircraft ultimately is an economies-of-scale business.
“Ultimately, the one with the most planes wins at this game,” Small said. “Sooner or later it’s going to narrow down to the few largest players in the market.”
Davis agreed, saying the market “ultimately is going to shake itself out. People are really scrambling for land at this point. Maritime, oil-and-gas, aviation and the larger mobility market — the industry could move in different consolidating directions.”
Baldridge said some consolidation has already begun. “GEE bought Row 44, Thales bought LiveTV, AT&T entered and then exited,” Baldridge said. “I agree, it’s a question of scale.”