03.24.12

Lies, damned lies and statistics…

Posted in Aeronautical, Financials, Services at 7:26 am by timfarrar

This week it was quite astonishing to see a Wall St Journal article hyping the in-flight passenger communications market in advance of Gogo’s planned IPO on NASDAQ, by highlighting incorrect statistics from In-Stat about the size of the opportunity. In particular the WSJ article states:

Currently about 8% of passengers use the service, up from 4% at the end of 2010, according to In-Stat, a research and consulting firm. That likely will reach 10% of passengers by the end of this year, In-Stat says.

Gogo’s amended S-1, filed on Wednesday, gives specific data for the take-rate on Gogo-equipped planes (nearly 90% of the market in the US), noting that it remained constant at 4.7% in both 2010 and 2011. Underlying usage is increasing, but the usage figures were distorted in late 2010 by a large sponsorship from Google (around $7M) which offered free access for 6 weeks between Thanksgiving and New Year. I’ve tried to back out the estimated quarterly evolution of Gogo’s revenues and take rate over the last three years, and as shown in the diagram below, the take rate at the end of 2011 was only just over 5%, and on current trends it will take several years to reach the 8% that In-Stat is wrongly suggesting is the take rate at present, let alone the 10% take rate In-Stat projects for the end of 2012.

Of course In-Stat’s projections of the in-flight communications market have been miles off all along. Last October, In-Stat claimed that “in-flight Wi-Fi revenue is expected to grow from about $225 million in 2011 to over $1.5 billion in 2015″. In reality, Gogo’s in-flight passenger WiFi revenues were just over $80M in 2011 and total passenger spending on in-flight connectivity services worldwide was only about $100M last year (most international services are supported by Inmarsat, who said on their recent results call that passenger connectivity generated between $2M and $3M of wholesale revenues in 2011). Surprisingly, Gogo even quotes an In-Stat forecast in its S-1 stating that “in-flight internet usage is expected to increase rapidly over the next five years, from approximately 15.6 million North American sessions in 2011 to 96.9 million by 2015″. However, with Gogo having only had 9M sessions in 2011, it is inconceivable that there could have been more than ~10M sessions in North America last year.

In this context, it is very surprising that the WSJ decided to quote In-Stat’s data without verifying it against the information in Gogo’s public filings. It is also worrying, with Gogo’s IPO set to take place in the near future, if potential investors take the WSJ article at face value and have a misleading impression about the current state of the in-flight communications market.

1 Comment »

  1. AT&T could launch HTC One X in May; Apple’s Tim Cook goes to China | WiFi-CONNECTIONS said,

    March 27, 2012 at 1:21 am

    [...] > The percentage of American fliers who purchase Wi-Fi onboard airplanes appears to hover at around 5 percent. Post [...]

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