Failure of Connexion Blamed on Development Costs, Insufficient Marketing

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  Space News Business

Failure of Connexion Blamed on Development Costs, Insufficient Marketing

By PETER B. de SELDING
Space News Staff Writer
posted: 26 September 2006
04:02 pm ET




PARIS — The failure of Boeing’s Connexion in-flight Internet service has been blamed on multiple causes:

The financial crisis among U.S. airlines, which agreed to adopt the service and then backed out after Sept. 11, 2001. Connexion’s airline backers ultimately were found only in Europe and Asia.

The unwieldy hardware needed to install the service on commercial aircraft, and the fact that aircraft needed to be taken out of service for several days to install the Connexion gear. Mark Dankberg, chief executive of ViaSat Inc. of Carlsbad, Calif., whose company supplies Connexion hardware components, said the in-flight Internet market needs systems that are smaller and easier to install than Connexion’s.

The increase in jet-fuel costs, which increases airline resistance to any weight added to aircraft, and places a premium on aerodynamics for antennas placed on the aircraft hull. Connexion’s antenna, it was said, was too bulky.

But satellite-fleet operator SES Global says airlines’ failure to properly market the service should also be taken into account.

SES Global Chief Executive Romain Bausch, a regular traveler to Hong Kong as a board member of Hong Kong-based AsiaSat, said he first saw a Connexion marketing campaign by Deutsche Lufthansa AG in the summer of 2006.

“Until then, there was nothing, and certainly nothing that would bring it to the attention of passengers on the plane,” Bausch said. “And when they finally did start to market it, it was only a week or two before Boeing decided to shut it down. It was clear they never really had a campaign to sell the service.”

Another SES Global official said that until this past summer, passengers needed to look deeply into Lufthansa’s in-flight magazine to find out whether Connexion was available on a given flight.

Chicago-based Boeing announced in August that it would be shutting down Connexion because of the market’s poor response to it. Estimates taken from Boeing’s reports to the U.S. Securities and Exchange Commission in the past several years suggest that the company has spent more than $1 billion on Connexion.

Unlike narrowband satellite communications links handled through Inmarsat of London and that company’s L-band mobile satellite system, Connexion was built on the leasing of entire transponders aboard Ku-band satellites over Pacific and Atlantic ocean flight routes.

Connexion was a large customer of Luxembourg-based SES Global, booking reservations for $300 million in backlog to cover the leases of eight transponders on the AMC-23 satellite over the Pacific Ocean, and four transponders on on the AMC-4 and AMC-6 satellites over the Atlantic Ocean.

In its Aug. 17 announcement that it was abandoning Connexion, Boeing said it would incur a charge of $320 million, with most of it to be booked in the third quarter.

Boeing will owe SES Global about $70 million in early termination fees, according to SES estimates. Bausch said some of the Atlantic Ocean satellite capacity will be retained to continue Connexion service to U.S. government aircraft.

Lufthansa spokesman Michael Lamberty said Sept. 21 that the company listed all Connexion-enabled flights on its Web site, and that Lufthansa continues to believe in the service. Lufthansa, he said, does not share the view that it insufficiently marketed the service.

Lufthansa issued a statement Sept. 22 saying the company has continuously expanded Connexion’s availability on flights and spent more than 10 million euros ($12.5 million) on a worldwide marketing campaign. Lufthansa said maintenance and other costs probably need to be reduced to make the service financially viable.

Following Boeing’s announcement, Lufthansa said its Connexion users — the Lufthansa service is called FlyNet — would be assured of continued access at least until January.

“Lufthansa FlyNet is enjoying increasing popularity and has proved to be technically very reliable,” the Lufthansa statement says. “Most recently, around 30,000 Internet users were active on board Lufthansa flights each month.”

Lufthansa said it would work with Boeing and other parties to investigate ways of continuing the service. “Meanwhile, as matters stand it cannot be ruled out that there will be a temporary interruption of the service as of January 2007,” the statement says.