09.23.10

JetBlue Ka-band connectivity: will it be free?

Posted in Aeronautical, Inmarsat, Operators at 11:59 am by timfarrar

Its now been announced that JetBlue has signed an MOU with Viasat to install Ka-band connectivity on its fleet, starting in 2012. One of the primary reasons cited by JetBlue was that the satellite capacity was much cheaper than at Ku-band.

We analyzed the cost of providing service for Aircell and Row44 in one of our recent research reports, and concluded that (as JetBlue also asserted), Ku-band satellite capacity can rapidly become the dominant cost driver for aeronautical broadband even at moderate usage levels and take rates. For example, we estimated that at a 25% take-rate, the cost of Ku-band satellite capacity would be between $30K and $80K per plane per year, depending on the amount of bandwidth allocated to each customer. This compares to an amortized satellite equipment cost of perhaps $40K per plane per year. Viasat’s Ka-band satellite could reduce the capacity cost by a factor of up to about 5 times, bringing the cost of capacity down to say $6K to $16K per plane per year.

Thus the strategic question for JetBlue is whether it will use this capacity cost differential to make the service free to end users (or free for most applications other than say streaming video). As noted in past news articles, charging for in-flight broadband has a huge impact on take rates. However, Row 44 (with expensive Ku-band capacity) and Aircell (with a limited amount of terrestrial bandwidth) can’t afford to offer free usage, unless they constrain the service significantly (e.g. no streaming video and limited bandwidth). JetBlue has already offered free (albeit very limited) service on its Beta Blue plane, whereas Southwest (which will set pricing on its Row44-equipped planes) has indicated that it plans to charge for the service.

If JetBlue did offer free service, then this would certainly shake up the in-flight broadband business. Would airlines step-in to pay Aircell directly for their service instead of relying on passenger revenues? Will there be a return of the sponsorship model used on airlines like Virgin America for a period last year? More to the point, will the mere prospect of such disruption cause airlines thinking about installing Ku-band to consider waiting for Inmarsat’s new Ka-band Global Xpress service in 2014?

UPDATE: Now Southwest has agreed to buy AirTran, which already has fleetwide in-flight connectivity through Aircell, will Southwest have yet another reason to reconsider its Ku-band plans with Row44?

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