Northern Sky Research

In-Flight Connectivity: Are the Puzzle Pieces Together?

Sep 2nd, 2015 by Claude Rousseau   More from this Analyst | Profile

The successful launch of Inmarsat’s 3rd Global Xpress satellite signals the beginning of a new era for in-flight connectivity, characterized by a step up in satellite capacity supply and the advent of global coverage at speeds not before seen.  However, will this mean that airlines as well as all players along the value-chain finally reap the benefits that improved technologies bring to the market?  Unfortunately, missing elements along the IFC value chain don’t permit a resounding ‘Yes!’ to that question.

In its recent Aeronautical Satcom Markets, 3rd Edition report, NSR’s revenue forecast from equipment installed on aircraft of all sizes is still a very large part of the overall revenues in the short- to medium-term.  But if we take a microscopic view on the two main IFC markets, wide-body and narrow-body, the difference is even more stunning.  It is not until 2020 that revenues from satellite-based services to passenger aircraft will be double that from equipment, and this even takes into account a strong drop expected in the unit price of antennas, modems and associated gear needed to bring connectivity onto the aircraft.  In a truly ‘commercial’ satellite market, this ratio would be 10:1 to be considered healthy. 

Technically, solutions today are sufficient for a vast majority of the market, and improvements such as metamaterials and low profile gear are expected in the mid-term that will have a lasting impact on the market.  But will the promise of flat panels break the ROI so much that airlines will find it a ‘no-brainer’ to give their passengers free Wi-Fi connections?  A few players are working hard at it from both a GEO (‘FSS’) and LEO or mobile perspective.  However, it is grasping at straws to believe the business case closes all at once when the form factor of antennas give airplanes less drag through smaller size, weight and power.

The cord-cutting of ‘traditional’ VSATs (or bulky radomes) is years away as certification and OEM deals need to support the thesis, and these take time.  Given all the hoops that vendors need to go through, is global coverage enough?  The promise that sooner rather than later, connectivity via satellite will be a solution that reaches (the Holy Grail of) 100% market penetration rate for both wide-body and narrow-body (those flying at least over 1.5 to 2 hrs) will take time to be fulfilled.  There are still roadblocks such as regulation in the U.S. (under both House and Senate acts and under the FAA ban on cell phone calls) that steal a bit of the value from the whole package.

Finally, business-wise, the jury is still out as to what will be successful: offering airlines a revenue share, or giving all the controls such that over a certain ‘allotment’, vendors are paid for equipment or services.  Many HTS providers consider that their solutions provide airlines the most leverage and care less if a certain threshold is not reached as they are confident in their ability to get traction across the aircraft population. But who pays in the end is the customer and for them, the cost equation is still not sorted out.   

Bottom Line

The oncoming jump in capacity with many HTS launching in the coming years with increasing coverage of promises to unlock the potential of in-flight connectivity for the satellite industry. However, there are still many pieces of the puzzle needed to be in place to realize its potential, not the least of which involve figuring out a rather complex and uncertain IFC business model.

NSR is experienced in strategic advisory and consulting efforts regarding aeronautical connectivity, including business aviation across all platforms, regions and connectivity types.  Please contact Christopher Baugh for more information.