These days, for any aircraft-based In-Flight Connectivity (IFC) broadband  system to be considered a success, the aircraft need to start flying again and carrying passengers.

A report from Northern Sky Research (NSR) sums up the problem perfectly, saying: “While most of the aviation industry is treading water in the ongoing travel deterrence scenario by focusing on reducing cost, players such as Delta Airlines (which announced its free In-Flight Connectivity (IFC) service across its fleet in a Pre-COVID19 environment) are moving ahead with their IFC plan through service diversification and changes in the business model.”

NSR adds: “In the last few years, the IFC market has moved from IFC 1.0 – Basic ATG Network to IFC 2.0 – Ubiquitous connection with lower focus on throughput. Now, it is transitioning to IFC 3.0 with a step increase in throughput demand with the free service model being a core driver. And this transition is not halted amidst all the challenges that the airlines are currently facing.”

“The industry is witnessing increased transition towards Airlines having greater control towards service offerings, network management and/or partnerships with a third party,” says NSR.

“According to NSR’s Aeronautical Satcom Markets, 8th Edition report, 43% of the total number of IFC offering airlines cumulating to 31% of all aircraft now use an Airline-directed business model. In the Airline-directed model, passengers buy directly from the Airlines, which in turn pays to the service providers as per the connectivity contract. Asia has the greatest number of airlines with an Airline-directed business model whereas North America tops the list by number of connected aircraft with 900+ on this model,” suggests NSR.

“But it is worth noting that North America also witnessed a large jump in the number of connected aircraft using a Hybrid model with 1,500+ connected aircraft. Typically, a third party is involved in this model in addition to the airlines and service providers like Amazon, Netflix, and Apple – which result in the subsidized or marked down cost of service. Moving forward, an increased transition is expected towards airline-directed and hybrid business models, as the industry vectors closer to IFC 3.0, especially with the aspiration of free IFC services.”

NSR asks the obvious next question, which is, for an IFC service, which is currently expensive and now is free for passengers, who pays for it and what is likely to be the cost of the service?

NSR answers by saying: “Currently/typically, airlines with IFC offer free messaging and free limited surfing to passengers where data access fees range anywhere between $5-$50 depending on the packages such as 1-trip, 1-hour, 24-hour or 1-month plans. With the gradual infusion of the free-service model, NSR estimates the average take rates and bandwidth demand per in-service unit to ramp by ~3x to ~6.5x during the 2019-2029 period, resulting in year-on-year revision in the ARPU values (i.e. revenue for service providers = cost of service for airlines).”

NSR says that passenger IFC Satcom & Air-To-Ground ARPU is forecast to grow from $6,000+ to $8,200+ at CAGR 3.1 per cent averaged across frequency bands, airframes and regions. “Clearly, the ARPU growth rate is not proportionate to the ramp-up in bandwidth demand due to the expected decline in capacity and service pricing brought forth by increased supply and competition. This means keeping a check on the connectivity cost for airlines and thus creating a favourable environment for the free service model,” it advises.

NSR says it expects the transition around the free-service model to be limited during 2019-2029 with the following options (may or may not overlap) for bearing the cost of service across different airlines and regions:

• Airlines bearing the entire cost by indirectly charging passengers during ticketing
• Airlines bearing part of the cost by charging passengers indirectly and at the same time covering costs from sponsors/advertisements/partners as the case in the hybrid model
• Limited free service with a data cap and payment option post the cap (similar to the existing model)
• Not free for all or free service based on class of ticket and limited options for cheaper seats
• Extended loyalty programme perks – From free additional bags; Priority boarding; Free connectivity services

NSR concludes: “In terms of business model and bearing the cost of service, the industry is likely to witness a mixed bag of trends, with airline-directed and hybrid business models being the top choices of the industry. In long term, the fundamentals of capacity demand growth resulting in increased ARPU for the industry remain strong, led by the free service model. The emphasis across vendors and end-users on an efficient network, system and pricing is more than ever propelled by the COVID19 scenario. Overall, this will lead to a long term sustained ‘Sea Change’ for the IFC market.”

Other posts by Chris Forrester:

1. Rivada visits Terran Orbital’s manufacturing HQ
2. Avanti wins spectrum debt obligation case
3. SpaceX breaks records for re-use launchers
4. IRIS2 already in trouble?
5. Intelsat contemplates next steps
6. SpaceX: 2.7m customers and $180bn value
7. Boeing, Virgin Galactic in court battle
8. Jupiter-3 a changemaker
9. Terran Orbital is again Compliant

Categories: Blogs, Broadband, Broadcast, Inside Satellite, Satellite

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