Just under a year after launching its 2Ku service Gogo is finally confirming something we’ve all expected: It makes more money for the company. Speaking at the Cowan & Company Transportation Conference this week CEO Michael Small was clear. More bandwidth means more revenue and 2Ku is driving that trend for the company. Confirming that Gogo is also benefitting completes the triangle of benefits for passengers, airlines and the inflight connectivity provider.
We’ve seen an increase in [Average Revenue per Aircraft] that’s started to take effect this year and that will only accelerate with the additional bandwidth brought by 2Ku principally.
This is no surprise, of course, but until now the company was unwilling to confirm that the numbers really are trending that way, citing insufficient data. The news comes as Gogo also begins to experiment more with pricing for the solution.
— Two If By Air (@twoifbyair) July 29, 2017
Previously Small stated that the pricing models will “increasingly be tailored to the airlines’ preferences.” And despite that variation mostly looking like higher rates to passengers, Small admits that lowering the end-user price point is critical to the success of a connectivity platform.
You need lower price points. The Netflix model where it is one price for everybody, I don’t think applies here. It is going be different not only across airlines but within an airline there will be different price plans for different customer segments. Price will come down. Price per bit will come down a lot. But it won’t be just one price.
Maybe it should be just one price, though, at least from an airline perspective. It turns out that delivering free inflight connectivity is a compelling marketing tactic. Small says that Japan Airlines, a Gogo customer, “[I]s taking market share in a very real way by offering free connectivity to all passengers on their domestic fleet. They compete with ANA and the bullet trains and it is moving share.”
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JetBlue has similarly noted the value of its free Fly-Fi product. CIO Eash Sundaram recently confirmed that the connectivity platform translates to higher net promoter scores, especially on transcon flights, and allows the carrier to realize a revenue premium (i.e. charge more for tickets) versus its competitors.
A lower price point is one step on the way to universal connectivity for passengers. So is increased capacity on board. The final component is a change in the authentication process that delivers a seamless transition for passengers between the ground and aircraft-based systems. Eventually that translates to not only 100% fleet coverage but also something resembling a 100% take rate from the passengers.
The reason it hasn’t happened historically is insufficient capacity. Once there’s the capacity you start solving the problem of how to get everyone on. The prices will come down. The login will go away; it’ll be auto-authentication. It will become easy and natural. We’re on the way to 100% [fleet connectivity]. Within the next 3-5 years you’ll start seeing an inflection point.
Gogo also updated its installed 2Ku fleet count, with more than 250 aircraft flying with the system today and expectations of several hundred more before the end of the year, now that the North America peak summer schedule is over and airlines (mostly Delta) can afford to have more planes on the ground rather than carrying passengers.