European airlines had long believed they did not need in-flight Wi-Fi for shorter routes. But they've finally realized passengers want to be connected constantly.
Starting early next year, travelers on some Lufthansa flights in Europe will be able to surf the web using airborne Wi-Fi that promises speeds and coverage that trounce existing offerings.
The network, which will use Inmarsat Plc’s satellites and Deutsche Telekom AG towers on the ground, aims to let business travelers check the news and vacationers chat with friends as they jet across one of the world’s most crowded airspaces. While existing inflight Wi-Fi services rely on satellites or terrestrial infrastructure but not both, Inmarsat and Telekom say their hybrid approach offers seamless service at a lower cost.
The partnership is one of at least three ventures aiming to help European airlines catch up with their U.S. counterparts. While travelers can surf the internet on about 75 percent of flights in the U.S., according to airline rating site Routehappy, only a handful of airlines in Europe offer the service.
“Globally, the penetration rate for onboard Wi-Fi is in the 3 percent range,” said Brian Pemberton, vice president and general manager at satellite network provider Iridium Communications Inc. “People are kind of scratching their heads. Can the airlines make money with it? It remains to be seen.”
Inmarsat and Deutsche Telekom say airlines can if they use Wi-Fi as a way to increase customer loyalty. Two other companies are also making this pitch to airlines in Europe: ViaSat Inc., which provides Wi-Fi to U.S. carrier JetBlue Airways Corp., and Panasonic Corp., which serves United Airlines.
ViaSat plans to wade into the European airline Wi-Fi business after it launches new satellites in 2017 and 2019, and could offer service once the first satellite goes online, CEO Rich Baldridge said. Panasonic, which currently offers Wi-Fi using rented satellite space, plans to launch its own device to increase coverage, said David Bruner, vice president of global communications service.
While the Inmarsat-Deutsche Telekom offering will provide faster connections than existing inflight Wi-Fi, ViaSat says its service will be even faster. Inmarsat counters that cost will be more important than speed. It’s preparing to subsidize the installation of equipment on planes, saying the service will catch on in Europe only if airlines offer it free of charge.
“Wi-Fi on board will be free, and telcos and airlines will offer it as an add-on in five to 10 years’ time in order to gain passenger loyalty,” Rupert Pearce, Inmarsat’s CEO, said in an interview.
$5 Billion Market
Pearce estimates the global market for airline Wi-Fi coverage will be $4 billion to $5 billion a year by the end of the decade. He wants to leverage Inmarsat’s relationships with airlines — more than 90 percent of commercial airplanes worldwide use the company’s satellite-linked safety services — to gain a foothold.
To try to speed adoption, Inmarsat and Deutsche Telekom brought Deutsche Lufthansa AG on board by subsidizing the $250 million cost of installing equipment on its European fleet, Pearce said. GoGo Inc., which provides satellite service to a number of U.S. carriers, has taken a similar approach, sharing revenue with partner carriers once the upfront cost, which it covers, is amortized.
Ground-based systems can cost $100,000 per aircraft to install, while satellite services cost $350,000 to $500,000 per plane, said Tim Farrar, president of the Mobile Satellite Users Association.
Low-cost carrier EasyJet Plc said it’s talking to providers including Inmarsat, and is ready to offer Wi-Fi soon.
“EasyJet believes it is no longer a question of if but when we are able to install a product that works well for our passengers and the airline,” spokeswoman Eleanor Gillingham said.
Competitor Ryanair Holdings Plc is “waiting on the right technology to facilitate a low-cost entry point so that it is affordable for our customers,” spokesman Ronan O’Keeffe said.
Europe’s lag is due largely to fragmented regulation of satellite spectrum, Panasonic’s Bruner said. Wi-Fi providers have to obtain permission in 28 EU member states, Switzerland, Norway, and other neighboring countries to avoid gaps in coverage.
“It’s confusing to passengers when there are gaps because they want seamless coverage from gate to gate,” Bruner said.
Inmarsat said its satellites should cover some of the gaps in Deutsche Telekom’s network, which has permission to build towers in 20 European countries.
Among the few carriers currently offering Wi-Fi in Europe is Norwegian Airlines, which offers free live news, streaming video, and Internet access using a system built by Los Angeles-based Global Eagle Entertainment Inc., said Chase Burns, a spokesman for Norwegian.
The satellite-based system isn’t as fast as some of the newer entrants to the market: Internet access tops out at 3G mobile-network speeds, which are better suited to sending e-mail or using mobile chat services than downloading movies. When many passengers try to log on at once, the system can get bogged down, Burns said.
“There can be 100 people online at any time, but our Boeing 737s do have 180 seats,” Burns said. “Speeds can be slowed down. But we haven’t had many complaints. The product is free.”
©2016 Bloomberg L.P.
This article was written by Michael Scaturro from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo Credit: A traveler surfs the Internet using an Inmarsat connection. Inmarsat is one of several companies expanding in the European market. Inmarsat