On Friday we had a chance to speak with AirCell’s, Norman Smagley, Executive Vice President and CFO. The firm has just announced another round of successful financing for $35m from its investors, this being added to $500m already invested in the GoGo service.
AirCell has essentially transitioned from startup to a normal business. GoGo has achieved critical mass. Of the ~1,300 airplanes flying that have Internet access, about 1,100 use GoGo. The service is available on some 3,800 daily flights in the US.
Looking forward the firm recognizes the globalization of the business. This means it has to remain technology agnostic. Which is to say that it cannot remain air-to-ground (ATG) focused. Its customers need to have over water flights with data access.
Currently GoGo’s ATG approach has an advantage over satellite solutions – they have no radome which means less weight and drag. With $100/bbl oil this is no small thing. But technology never stands still and the ATG approach has limits customers are not going to be satisfied with for long.
Speaking of technology, we understand that the current installs are all of the same generation. But change is coming – higher bandwidth is on the horizon and will be announced “soon”. The firm is cagy about a date for this news.
The firm got a boost to its business model that makes use of big name sponsors. Between November 20 and January 2, GoGo had Google as a sponsor on Virgin America, Delta and AirTran fleets. During the period GoGo saw 3m sessions – an average of over 57,000 per day. There can be no doubt that these sponsor deals are going drive more paid sessions. Data access is like a drug, the more you have the more you want. This may be why we are now seeing sponsors like Ford and Facebook step up. Google, Hewlett Packard, Ford, Facebook, People.com and Skymall have sponsored GoGo access.
While mentioning AirTran, we tried but got no guidance on what happens with AirTran after it merges with Southwest. Mr Smagley would only say they are pleased that Southwest will get an opportunity to see their system working. A fair point, but Southwest is getting an alternative system running. This will provide the merged airline with the greatest amount of information on both systems. The outcome will be interesting to see.
In 2011 Aircell expects to increase its base of installed aircraft by an average of three per day among airlines. GoGo is currently available on all AirTran, Virgin America and mainline Delta flights; as well as some flights operated by Air Canada, Alaska, American, United and US Airways. Service on Frontier is expected to begin shortly.
In an otherwise data-dry interview, Mr Smagley did say that usage during the Google deal was a “double digit” increase in percentage terms over regular usage. Of course maximum uptake of the service would occur as long as it remains free. The popularity of smartphones is old news, but the rush to tablet computers only supports data access demand in-flight. When asked about this, Mr Smagley would not give us a breakdown on take-up by equipment. He did however say that they have information indicating a preponderance of system use among business fliers.
But let’s go back to the future. Current satellite options are not attractive to GoGo’s customer base. The Ku technology is old and expensive says Mr Smagley. But Ka technology is another matter. Being technology agnostic means GoGo could reevaluate satellite. Well, they are going to have to go that route to cover over water flights. When asked what this would mean for an airplane, Mr Smagley demurred. After all, take a 757 with GoGo installed now – it will need a radome (even a small one) for Ka, which adds weight and complexity. Not to mention CAPEX – who pays for this? So the future in technology terms looks straight forward now in terms of a path – but how to get to the goal is another matter.
In summary, GoGo has proven that travelers want data access. They have demonstrated that sponsorships are popular and work as a good advertising method in revenue terms and this ultimately will drive up usage. Clearly the increased use of mobile devices can only support greater system use. Mobile data access is no longer the plaything of business travelers; the iPad has proven that already. With its critical mass, GoGo has set the bar – overseas airlines are likely to regard them as a highly reliable (perhaps first choice) vendor since they have ironed out so many of the business and technical challenges.
