In-Flight Cell Services Not Profitable?

September 29, 2006 By Ian Bell

A new report from Telecom,Media and Finance Associates, Inc. indicates that deployment of in-flight cellular service may not show a good ROI.

Some of us would be overjoyed to being able to use in-flight cellular services (high-speed internet, phone) while others would probably enjoy some quiet. In any event, Airlines are considering adding these services to their planes in an effort to attract customers and update their amenities.

A report released today suggests that deployment of in-flight cellular could produce revenues of more than $600 million from 4500 equipped planes by 2016. The problem is that they ROI would be less than $200 million from under 1800 equipped planes.

Tim Farrar, author of the report, commented, "A key lesson from the failure of the Connexion-by-Boeing system was that low usage, leading to insufficient revenue per equipped aircraft, results in airlines having to subsidize the cost of equipment. We estimate that the in-flight cellular services offered by OnAir and AeroMobile, using Inmarsat satellite equipment, will need to generate much higher end-user revenues than the $100,000 per plane achieved by Connexion before the service reaches breakeven for airlines on a standalone basis. Only then will it start to become attractive to low- cost carriers. This represents a challenging objective since in-flight cellular calling will remain a premium-priced service, targeted primarily at the limited number of frequent business travelers who need to remain constantly in touch. However, terrestrially based Air-To-Ground (ATG) systems, such as that planned by AirCell in the US, are expected to use lighter, cheaper equipment and thus may be profitable at much lower levels of end-user revenue. As a result, widespread deployment of in-flight Internet access may be easier for US airlines to justify."

More information regarding this report, visit TMFAssociates.com.

Showing 2 comments

Matt at 1:40pm 2nd October 2006 I hope that they don't "add" it to the bill whether I use it or not. But I can say that if I'm traveling on business, I'm usually in the air for 3-5 hours each way. I could get a lot done with cell and internet access while in flight. I would choose that airline in advance for that service even if it was slightly more as I could make it back while traveling. Now to make it successfull, they have to make the price a good value. If they do that, they will make way more than their predictions.
James at 8:50pm 29th September 2006 One thing the airlines need to consider beyong just the ROI of the cellular service itself is the effect of offering that service on ticket sales. I know I would heavily lean towards using airlines that offer such a service. I might not use it all that much (or I might use it a ton depending on how cheap/expensive it is), but just the ability to use it when I need to would have me booking with those airlines.