01.15.09

More airlines, but apparently few users for Aircell

Posted in Aeronautical, Financials at 10:03 am by timfarrar

United has now joined the North American airlines signing up to fit the Aircell service for in-flight Internet connectivity. Similar to American, it is initially just installing the service on its P.S. business-oriented cross country flights between JFK and LAX/SFO (though American also includes some 767 flights to MIA). Undoubtedly this is a great boon for business travelers, and our experience of the service was excellent. However, to date it looks like overall usage levels are very low, since few leisure travelers are willing to pay $12.95 even for a five hour flight.

On a American SFO-JFK afternoon flight last October, we decided to walk the plane and count the number of users: the result was 8 out of 34 business and first passengers were using it, but only 2 out of about 110 economy passengers. I’m sure American is pleased with this – since the high revenue customers at the front of the plane are happy, but the amount of money flowing to Aircell is far from enough to pay for the network. We understand that to date Aircell has installed the equipment for free, so the only cost to the airline is the fuel to fly it around.

Based on the usage levels we saw, gross Aircell revenue is probably only ~$60K-$80K per plane per year, less even than the $100K seen by Connexion-by-Boeing back in 2006. Connexion had many of the same characteristics – giving away equipment, a high fixed cost network (in that case global satellite capacity leases rather than a national tower network), a large staff, and was also a great service for passengers and airlines. There are a few differences, most notably that the Connexion equipment was much heavier and more expensive than the Aircell terminals, but also that Aircell can supplement its passenger revenues with installations in the business jet market. However, Boeing ultimately decided it couldn’t afford to continue to run the service, as did Claircom, Airfone and others with their earlier voice services. In the current financial climate, we wonder if Aircell’s network will be able to avoid the same fate? Certainly they seem a long way from the prediction of 2000 equipped aircraft by the end of 2009 made by Aircell’s CEO last summer.

2 Comments »

  1. craigvanwagner said,

    January 21, 2009 at 2:34 am

    As with all product introductions and research, it would be very interesting to find out if AirCell did any groundwork with regards to market research. Did they interview passengers if they would consider paying for this service? I hope so… Business plans need hard data to validate a concept. You can’t tell me that the current business climate and recession will be the excuse AirCell gives when the service fails. I can tell you that the airplane is sanctuary for many (or should I say most) business travellers. They don’t want to have to deal with the busy online world up there. There will always be the occassions when a deadline is looming or time sensitive situations prevail to spend the $12.95, but with everybody so used to free WIFI from point A2B, it makes no sense. Enjoy the ride, read a novel or work offline.

  2. Could Gogo be going away? » The Wandering Aramean said,

    December 21, 2009 at 4:18 pm

    [...] pundit/Analyst is now openly questioning the same thing that many have been quietly suggesting since the service and the rates were [...]

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