ViaSat Brings More Competition and Faster Speeds to the In-Flight Wi-Fi Market

When ViaSat pitched American Airlines not long ago, executives at the satellite Internet company made their usual argument. They promised they could deliver reliable high-speed Wi-Fi, similar to what passengers have at home, at a reasonable cost to the airline.

American’s executives were skeptical. Other airlines had heard similar assurances before, and not all connectivity companies could deliver. An airline would not want to tell passengers they could stream video, only to learn the system would get overloaded during peak periods, or not work at all over some areas of the United States. “Why should we believe you?” American executives asked, according to ViaSat President and COO Richard Baldridge. “Everybody comes in here and gives us a good presentation.”

ViaSat was prepared. Unlike its main U.S. competitor, Gogo, ViaSat does not have a test plane, so Baldridge asked American’s executives to buy a ticket on JetBlue Airways or United Airlines, two of ViaSat’s key customers. JetBlue uses ViaSat fleetwide, while United has it on more than 300 of its aircraft. Virgin America is another customer, but it only has it on 10 aircraft.

“Go fly on an airplane and see how it performs,” Baldridge said, recounting the pitch in an interview at ViaSat’s Carlsbad, California headquarters. “Don’t believe us. By the way, don’t believe anyone else, either. Anybody can do anything with one airplane. You can’t do that with 1,500 flights a day. You can’t fake it.”

ViaSat won a portion of the business, beating Gogo for the rights to install its service on 100 new Boeing 737 Max aircraft, the first of which should fly by late 2017. Gogo retains the vast majority of American’s business, and it even won a contract to add its new satellite service called 2KU on 134 of American’s narrowbody jets at the same time ViaSat got its big news.

But for ViaSat this was an important victory. It had won a contract with the world’s largest airline, a carrier that had been Gogo’s first customer in 2008. Baldridge said it was validation of an argument that ViaSat had been making for years. Airline passengers want the Internet on planes not just to check email or access a virtual private network, but to stream data and consume social media, just as at home.

Now ViaSat, which once viewed in-flight connectivity as a niche business, is focused on winning more airline customers, both in the United States and abroad. With one satellite already in orbit and another set to launch next year, the company is calculating it will have enough bandwidth to keep airlines and passengers happy.

But ViaSat still has work ahead. Gogo, a pioneer that’s recently become derided for its slow speeds and high prices, finally has its own relatively cost effective satellite-based solution for the U.S. market. ViaSat and Gogo likely will compete against each other for many more contracts, at American and elsewhere. Each will be trying to persuade airlines it offers a better alternative.

“ViaSat is definitely better than what is being used by others today,” said Tim Farrar, a Menlo Park, California consultant who follows the inflight connectivity market. “Other people have promised what they can deliver in the future. Those aircraft are not flying on a meaningful number of routes yet, so we just don’t know how they are going to perform.”

Proprietary Technology

What makes ViaSat unique in the U.S. market is that it owns satellites. The company launched what it calls ViaSat 1 in 2011, and at the time, it was the highest capacity satellite in the world.

The original plan wasn’t necessarily to win airline business. One of ViaSat’s core businesses is a group called Exede, which provides satellite-based Internet to residential customers across the United States. The service is popular in rural areas, where customers cannot find any other coverage, and in some cities, where only one provider, such as Comcast or Time Warner, controls most of the market.

Today, Exede has about 700,000 customers, and its plans usually cost between about $50 per month to $100 per month. It’s a good business, but ViaSat realized it could make more money selling the same bandwidth to airlines. Now, having solved the problem of getting capacity to planes, the company uses ViaSat 1 to feed both its residential and commercial airline business.

“The challenge was not so much delivering the bandwidth, but delivering the bandwidth to a moving object,” said Jamie Perry, JetBlue’s vice president of marketing.

It’s not yet a perfect solution. The satellite provides coverage only in the Lower 48 U.S. states, so service cuts out on routes to Hawaii, Canada, the Caribbean and Latin America. But that should change next year, after ViaSat launches ViaSat 2. It will cover much of the Americas and the North Atlantic, allowing ViaSat not only to fill in gaps for its U.S. customers, but also to sell its proprietary technology to more international airlines.

ViaSat has even more comprehensive plans. Later in the decade, it is planning to launch a series of satellites that should give it worldwide coverage. Already, it has contracts with some international airlines, including El Al and Qantas, but those rely on satellites ViaSat did not launch.

ViaSat’s approach is different than Gogo’s. Instead of having its own satellites, Gogo exclusively buys capacity from others. Gogo’s proprietary technology for its satellite coverage is its antenna, which it calls 2KU. Gogo has said its technology is among the most efficient in the marketplace, allowing airlines to acquire more bandwidth at lower costs.

But Farrar said ViaSat’s platform might still be cheaper for airlines than Gogo’s. If airline can pass on the cost of the service to customers, that may not matter. But if they want to offer it for free, like JetBlue, ViaSat may have an edge.

“Fundamentally, Viasat’s capacity is affordable to allow airlines to deliver a free-to-passenger service,” Farrar said. “It’s still unclear whether the 2KU capacity will be cheap enough to deliver a free to passenger service.”

Still, ViaSat admits it needs its second satellite – and soon. The company says it has started “managing capacity” for residential customers, generally by selling fewer home packages so it can ensure it can meet its contractual promised speed to airlines. On JetBlue, Baldridge said, passengers typically get 12 megabits per second to each device, enough to stream content.

ViaSat is fine with reducing its reliance on home customers, because airlines pay more.

“We’re not giving [financial] numbers out, but I would turn residential customers off to provide aero customers,” Baldridge said. “The yield for commercial air is higher than for residential.”

Ahead of its Time?

When ViaSat first started explaining its satellite service to potential customers, not everyone understood was the company was selling.

Don Buchman, ViaSat’s vice president for commericial mobility, remembers it well. Airlines would say, “All my business traveler wants is his VPN or his email, or his Excel or Power Point,” he said. ViaSat knew an inflection point was coming, but not all airlines were aware. “We were sort of a fish out of water,” Buchman said.

Then JetBlue signed up, and ViaSat’s fortunes improved. JetBlue wasn’t really ViaSat’s first customer, as Continental Airlines signed up at roughly in the same time, in Spring 2011. But Continental, and later United, charged for the service, and banned streaming. Even though United’s customers have access to a speedy platform, they don’t always know it.

JetBlue wanted to do things differently. It was late to Wi-Fi, not even committing to add it until three years after Delta and American started installing an early-generation Gogo system. That Gogo system is slow – it relies on ground-based cell towers – but it generally works, and at least business passengers had been able to send emails in the air.

JetBlue understood what ViaSat was selling, calculating that customers wanted a ground-like experience.

“It was reasonably clear to us in the beginning that if the ViaSat did half of what they said it was going to be, it was going to be ground breaking,” JetBlue’s Perry said.

On JetBlue, Buchman said about half the bandwidth is now used by streaming video and social media applications like Snapchat. “It pretty much follows Internet habits on the ground,” he said.

JetBlue does not charge for Internet because it defrays the cost with sponsorships, including a high profile one with Amazon. However, before Amazon agreed to the deal, Buchman said Amazon sent people on board JetBlue flights to guarantee the system could handle it. NetFlix, which has had a similar partnership with Virgin America, did something similar.

“Amazon and Netflix went out and tried to break it,” Buchman said. “They couldn’t.”

The Push to Switch

For JetBlue, the gamble paid off. But as more airlines switch to satellite services, it will lose part of its competitive advantage.

“We have a real first-mover advantage from being the first ailrine in ViaSat and having something that proves to people it is possible to have reliable high-speed Internet service in the air,” Perry said. “I think there was skepticism before we went with ViaSat.”

With more capacity coming, more airlines likely will add ViaSat’s service. In June, Gogo told investors American has the contractual right to switch providers on 550 aircraft currently under contract. Gogo said it could not reliably estimate exactly how many planes American might seek to switch, but it said it expected American might exercise its rights on “significant portion, or potentially all” of the aircraft.

“There’s no reason why we shouldn’t abel to win more American Airline stuff,” Baldridge said.

Farrar, the analyst, said Panasonic Avionics Corp., which provides Wi-Fi for many of American’s long-haul planes, may also be in the mix for more business, both at American and elsewhere. But he also said ViaSat might also have a chance with Southwest, which has satellite-based Wi-Fi through another major player called Global Eagle Entertainment. Baldridge said he believes ViaSat even has a chance with Delta, which historically has been loyal to Gogo.

“Clearly ViaSat has been marketing its solution extensively and for the moment its coverage is focused on North America,” Farrar said.

But even as other airlines copy JetBlue, few expect other carriers will offer free Wi-Fi. Even Virgin America, which has a similar model to JetBlue, elected to charge for ViaSat’s product after a brief trial period.

“We like free, but we’re not the airlines,” Baldridge said. “They get to run their business.”

As for the future, ViaSat promises to keep evolving. It knows it will need to keep delivering more capacity to meet passenger needs.

“Always more bandwidth,” Baldridge said. “I like to say, no user has told us they want less yet.”