There’s an In-Flight Connectivity Bubble That’s About to Burst

New developments in the aviation connectivity market now happen at speeds which surpass even the fastest connections on offer.

Just last week, while a suggestion was made at the SITA IT Summit that this market is in a bubble and industry consolidation is sure to follow, Panasonic Avionics Corporation (Panasonic) announced a new agreement with Eutelsat America Corp. (EAC) to deploy a new satellite in 2017 which will provide connection speeds at 200 Mbps; and, at very the same Summit, JetBlue announced that it will launch a new satellite to expand popular its Fly-Fi network.

This follows recent announcements by AT&T and Honeywell that they will collaborate to establish a 4G Hybrid Air-to-Ground Network in the United States to supply connectivity demand from airlines; and Inmarsat’s announcement that it too that it will establish a 4G Europasat Hybrid Satellite/Air-to-Ground Network to provide more connectivity options in Europe (and possibly beyond), with British Airways the first likely airline to adopt. These followed the reveal from Gogo of their new 2Ku Wi-Fi service at the Aircraft Interiors Expo this April.

So what is really going on here? Is there a frenzy of excitement over this technology with no basis for demand, as the term “bubble” would suggest? Are all these mega-corporations–and other players in this sector–simply high on Wi-Fi? Will there be a connectivity market collapse–or are we missing something?

We decided to take advantage of the participation at the Summit by OnAir, who was part of the discussion where the issue of a bubble was first mentioned, and met one-on-one with OnAir’s CEO, Ian Dawkins, to ask these questions outright. This came just after we reported on OnAir’s petition to U.S. regulators and legislators that they not impose an outright ban on mobile connections onboard due to objections to the telephony aspect of these services.

We decided to ask him to clarify this further too. Last, for good measure and a sanity-check, we reached out to the major players for feedback on the bubble question. Some failed to reply in time, but we include the feedback from those who did reply here.

“Talks of a connectivity bubble have more to do with satellite providers and other communications providers entering the market trying to get involved in direct sales of these services to airlines, which is not their strength,” Dawkins told Skift. “As an example, Honeywell/AT&T and the satellite companies themselves who lack the previous experience supporting these types of services to airlines.” Dawkins told us.

Dawkins also took on the offer from Honeywell/AT&T telling us that “incumbent suppliers will offer 4G too in a few years time,” and that “it is a saturated market in the U.S.”

This agrees with feedback we received from David Bruner, Vice President of Global Communications Services at Panasonic who told Skift: “The operating cost of a global network is very high, and it requires a large number of aircraft to operate profitably. The supplier with insufficient subscribing aircraft would likely need to exit.”

Of course, market incursion by new players and moves by existing players (satellite providers) to work around their established distributors, as Dawkins suggests, do not necessarily imply a bubble.

Bruner characterised the market to Skift as “hyper-competitive and even irrational at times,” emphasizing that “suppliers need long-term business models that are rational.” Bruner also told us: “The operating cost of a global network is very high and it requires a large number of aircraft to operate profitably. The supplier with insufficient subscribing aircraft would likely need to exit.”

Dave Davis, Chief Operating Officer & CFO of Global Eagle Entertainment, which provides content services for In-Flight Entertainment to airlines, and which acquired high-speed connectivity supplier Row 44, gives Skift a different perspective.

“The notion of demand being “limited” is not in line with how the market is currently evolving,” Davis explains. “Airlines are now viewing inflight connectivity as an essential element of the inflight passenger experience. In fact, today only about 10-15% of the market is penetrated, with vast opportunities across the globe. Very few international carriers offer connectivity today, although we expect that to change rapidly in the next 6-12 months and over the course of the next few years.”

Davis further asserts: “There is low market penetration for inflight connectivity, particularly internationally (~4%), and paired with the desire by airlines to provide this service and passengers’ desire to be connected no matter what environment they’re in, it becomes quite obvious how attractive a market this is for current and potential players.”

These conflicting arguments might be confusing. Strong indications that, while In-Flight Wi-Fi is very attractive to passengers, they aren’t willing to pay for it, might appear to strengthen the argument that there is an irrational enthusiasm by players seeking to enter or expand their reach in the connectivity market.

Except, it’s not all about giving passengers in-flight Wi-Fi. As Skift previously reported, the real promise of connectivity services lies in its application for live-streaming of entertainment, and aircraft operations services, including the hot-topic of aircraft tracking and nose-to-tail connectivity of aircraft, which also allows airlines to track the health of their aircraft in service.

Dawkins confirmed this to Skift at the SITA Summit, stating that “Wi-Fi will be a commodity differentiating product,” which airlines will likely give free of charge to their passengers in time, and that “nose-to-tail connected aircraft is the future of the business.”

Bruner addressed the entertainment aspect of demand when he told Skift: “The current demand is for more equipped aircraft providing the basic service. Complimentary or airline subsidized service will grow data usage dramatically over the next few years. In the future, 4 to 8 years, growth will likely be driven content rich services like streaming media.”

Davis also tells Skift: “There is low market penetration for inflight connectivity, particularly internationally (~4%), and paired with the desire by airlines to provide this service and passengers’ desire to be connected no matter what environment they’re in, it becomes quite obvious how attractive a market this is for current and potential players.”

While it is possible that some market disruptions will occur, as the various players focus on their strengths, the primary factor of discomfort from those active in the sector as distributors appears more motivated by the recent active involvement from the same satellite suppliers on which their services rely.

That Panasonic has reached out to Eutelsat as a partner to supply their latest high-speed connectivity product which is to date the fastest speeds announced at 200 Mbps would indicate that there is even room in the market for more satellite suppliers to enter, to improve the global coverage and the speed of connections available.

As Bruner tells us of this Eutelsat deal, “Panasonic has approximately 2000 aircraft contracted and more are being committed each month. We need to add significant new capacity to meet our airline commitments. The new satellite agreements provide us with unmatched capacity, unmatched efficiency through our unique design and unmatched service capabilities like spot beam bandwidth and global broadcast TV.”

Additionally, all those connectivity satellites in the sky can supply more than just commercial aircraft. Included in that capacity are services to the general aviation sector, including private and business jets, and the demand by governments for military aircraft and other potential defense applications.

As connectivity becomes an integral part of the daily lives of passengers, demand for the Wi-Fi will also increase onboard cruise ships and railways. It is unlikely that any satellites will go to waste, even if supply shifts away from the commercial aircraft sector and diversifies into other applications.

But the core question is whether there is a bubble for in-flight connectivity, and the information presented reflects a market with plenty of applications remaining to exploit. As Davis put it, “The operational benefits of inflight connectivity are of increasing focus and importance to airlines,” adding, “We expect this trend to continue to grow.”

In the very near future, connectivity may provide passengers with unprecedented inflight services, not just allowing them to check email, but also to be entertained like never before.

Plans for deployment of proposed programs are in stages; from late 2015 as the optimistic time-line from AT&T Honeywell to late 2016 for the Inmarsat Hybrid Satellite/Air-to-Ground product and 2017 when the launch of the Panasonic Eutelsat satellite is scheduled.

In the interim, just watching this all play out is pretty entertaining.