The airline industry seems to be pushing for ever more bandwidth on their aircraft. An early pioneer in this is Lufthansa which was among the first airlines to sign up for Boeing Connexion. Even after that program was abandoned, Lufthansa stayed committed to in-flight connectivity. Recently the airline was again pioneering and pushing for more bandwidth, and is now a user of the Panasonic solution. It appears the airline is experimenting with other options collaborating with Inmarsat and Deutsche Telekom.
The move by Lufthansa is not unique. As airlines take delivery of ever more e-Enabled aircraft the pressure is on to exploit the promise of better data transmissions to drive efficiency. To extract the maximum value proposition of e-Enablement, connectivity is key and better bandwidth is the Holy Grail. Take a look at this 2012 document from Star Alliance on e-Enablement.
If the US, GoGo is the king of in-flight connectivity with 70% market share. It has a system based on terrestrial signals and is moving to satellite. Big customers like Delta (whose entire fleet has Wi-Fi from GoGo and is the world’s largest connected fleet) want to offer customers connectivity offshore. The terrestrial system stays connected only within about 100 miles of the US coastline.
Satellite signals are much faster than terrestrial. Faster means bigger bandwidth. As any Wi-Fi user knows, faster is better than just about anything else.
What else is going on with connectivity? Airlines have converted to the ancillary revenue model. They want to sell everything and Wi-Fi is seen as another salable item. It is rare to see anyone on an aircraft without some sort of device that can’t exploit Wi-Fi. From smartphones to PEDS, everyone wants connectivity. Facebook alone is probably the biggest boost to demand for in-flight connectivity.
The problem for airlines has been a mix of issues: the cost for the service is a hurdle. But even so when you get online, the bandwidth has been spotty. Nothing frustrates a consumer more than seeing an uncertain value proposition get turned upside down in seconds. GoGo sees demand skyrocket during the holidays when their service is sponsored by big brand firms encouraging online shopping. So demand exists, if the value proposition is guaranteed not to disappoint, it should be a great ancillary business.
The rapid growth in personal devices is also impacting how airlines see the future of in-flight entertainment. Delta already encourages passengers to download an App to handle movies before they fly. Qatar Airways CEO dropped something of a bomb bound to get the seat-back hardware firms unsettled. Saying: “Traditional IFE systems are heavy, not reliable and suffer from excessive costs from the manufacturers. And there are only really two suppliers – Panasonic and Thales. In my opinion, people will bring smart devices and get content via the internet. Qatar will continue to provide access to exclusive content but this is a better option than an expensive IFE system.” The connectivity he can sell, the seat back content is provided at no charge on expensive hardware that is frequently broken.
So the case for connectivity is growing from the cabin even as installed devices may not have a bright future as it was once thought to have. Any MRO shop will tell you broken IFE is a major issue on aircraft shop visits. Besides the speed of the embedded technology is slow. These systems require approval from the likes of the FAA. If you want to slowdown progress, bring in the government regulators. As a service industry, an airline is better off getting out of the hardware business. And this is coming.
We think the business case for airlines offering connectivity and focusing the cost recovery on passengers is too risky. Passengers want to as closely as possible enjoy in-flight what they have on the ground and this is typically free Wi-Fi. Even airports offer this, and being stuck in an airport is the best place to charge for a signal since the audience is captured and can’t go anywhere.
Which brings us back to e-Enabled aircraft. We expect to see strong demand for connectivity rise from behind the cockpit door. Already some airlines (Lufthansa again) use the in-flight connectivity signals on the flight deck, and this is bound to grow. Norwegian famously noted that they don’t care if passengers get the signals for free since the airline recovers the cost by giving its pilots the connectivity.
So because of the growth in flight operations demand, we anticipate to see aircraft connectivity to grow fast. As an example of why this is needed, take the Pratt & Whitney GTF engine. This new technology engine has some 5,500 parameters being measured continuously. The new Rolls-Royce Trent XWB also is rich in sensors as part of its Engine Health Management system. The Bombardier C Series and Embraer E2 are aircraft that will acts as nodes on the airline’s IT network. We believe the Boeing 737 MAX and Airbus A320neo will work the same way. The 787 already delivers real-time data to Boeing. Airlines have bought into e-Enablement and this means they require connectivity as they do fuel.
It is therefore clear that the next phase in aerospace will drive demand for more bandwidth. Even as firms start to offer better data throughput via satellites, we expect to see demand outpace supply. The reason for this is that just as we have seen on the ground, there is never enough bandwidth. While e-Enabled aircraft can easily connect to airline IT networks as they pull up to a gate and perform data exchanges, this probably will not be enough. Already there has been a big push to ensure aircraft are continually sending their locations to airline OCCs. The shadows cast by AF447, MH370 and MH17 are long.
Airlines are going to embrace aircraft and engine monitoring. These require, in an ideal world, exploitation of real-time connectivity. But there is a longer food chain that benefits. For example, a lessor benefits by knowing where their assets are at any time. Moreover, they can monitor the use of these assets – is it being flown hard or gently? This information is crucial to the residual value. Presently lessors make calculated guesses and in future they could have much better knowledge of the asset. Another interested party is an insurance company with an equal interest in the risk they are covering. Had Allianz known the daily flight path of MH17 over Ukraine, might they have anticipated trouble and asked the flight path to be moved? These questions are not as theoretical as you might think.
The Bottom Line
It should be clear that more bandwidth is only beneficial. For those who are skeptical of this assertion, consider one final point. Airlines run into trouble every year – no year is without some sort of aviation disaster. With each disaster the legal profession comes forward to extract maximum damages. When an OEM, airline and lessor are facing some future lawsuit we know the lawyers are going to ask the timeless question: “What did you know, when did you know it and what did you do about it?”
Ignorance of the potential of accessing flight operations data will not protect anyone. If anyone (OEM, airlines, lessor, etc.) pleads that they knew the data existed or could be accessed but chose not to, the lawyers will have a field day.
With technology currently available for advanced satellite communications and additional operational applications available, a revolution in communications is underway, and higher bandwidth, with more sophisticated applications, will change airline operations. Not to embrace this evolution adds to risk. What you don’t know could cost a lot of money in damages.