PARIS — When does a major airline take the plunge into in-flight connectivity? What economic benefits should it expect? Are they immediately measurable?
Zhihang Chi, vice president and general manager of Air China, which operates some 400 aircraft — mainly Airbus wide- and narrow bodies, to 106 international destinations — spoke to these issues Sept. 10 at Euroconsult’s World Satellite Business Week. Here are excerpts of his remarks with Euroconsult Senior Consultant Florent Rizzo and with the audience.
IFC is gaining a lot of attention from airlines. Some airlines were early adopters, others preferred to wait, watch and decide later.
My responsibility is to run North America. So I have nothing to do with developing or implementing IFC, but I am a user and I am a very anxious user because we don’t have it, and I see a need for it.
Air China is a very safety-driven company and secondly, a financially driven one. As time goes by we’re becoming more and more service-driven.
We are conservative. We are hardly ever a first mover. As you can probably tell, I drool over the potential and possibilities of IFC, but we don’t have it.
How long has Air China been considering cabin connectivity and why is Air China not connected? What has prevented the company from equipping its fleet?
We conducted an IFC test flight in July 2013, in particular to test in-flight WiFi. At that time the technology was ATG, not satellite. I believe it was nothing but ACARS. So a proof of concept. It was successful and we got a lot of phone calls from our passengers. They were so excited. They said: Now you have WiFi and I only want to fly on those flights that have WiFi. But it was just a test flight.
So far nothing has happened. I think a lot of it is financial, as we are a conservative company, financially-driven. Our CFO holds a lot of sway. This happens to be something where it is impossible, in my opinion, to calculate the ROI.
Something else inhibiting us is the regulatory environment. There are a lot of issues in China that I’m not entirely familiar with, but I know it is a factor.
But regulations evolve, and maybe now there are ways to monetize the IFC system. What are your thoughts regarding ways to maximize IFC revenues to make it positive and how to monetize it?
Frankly, I’m not sure we can make the IFC piece profitable. There is a very famous airline executive who I highly respect. When I first joined the airline industry he taught us a class, airline 1010.
He famously said: I can tell you the cost of raising the whole cow, but II cannot tell you the cost of producing filet mignon or sirloin. I don’t think you can isolate IFC and calculate the ROI. IFC certainly does many positive things to our bottom line. It certainly makes our customers happy. It generates opportunities for us to do retail. And it generates opportunity for us to know more detailed information about our customers, which we can probably use for marketing and selling purposes.
I was impressed when I heard what Scandinavian Airlines did: To get into the system, you need to enter your seat number and your name. So the moment you’re in the system, they know who you are. They can monitor every move you make. Imagine the value of that information.
On the operational side there are many benefits as well, such as the safety side, and even on the service side: When IFC is implemented I would imagine it’s not just limited to the passengers, you can also give it to the cockpit and crew. There are benefits that are tangible and not so tangible.
When would be the right time to pick a connectivity solution and how can you make sure this solution is future-proof?
I don’t think there is a right time. If I can tell you the right time to implement IFC I might as well time the financial market. I think it’s each and every airline’s decision. As for future-proof, the technology is changing so fast, I don’t think there is any way to be future-proof. I guess a lot of it is indeed driven by our obligation to satisfy the needs of our passengers. But there is no right time and it’s impossible to be future-proof.
Would it make sense to install IFC as a competitive advantage?
Totally. When one does it, the others will have to follow. I don’t think you have a choice. Years ago I was firmly against IFC because I think that’s the only place where I can have some quiet. But once I tasted it, there was no going back. I can get connected and if there is some emergency on the ground with work they can catch me and then make some in-air decision. So being connected is critically important.
A personal example: On my way to Europe from LAX, I forgot my car key in the security check bin. I didn’t realize it until I got onboard. Then I called my staff and I said I forgot my key, go get it. They went to the security line and retrieved it and said “boss, we got it.” I said: “How can I be sure it’s my key? Take a photo and send it to me.”
They did and just as they sent it to me, the flight took off. So I said it doesn’t matter, because we have inflight WiFi. Well, the WiFi didn’t work. So an otherwise beautiful experience was somewhat compromised. I still give high remarks to the in-flight service I received, but it was somewhat negatively compromised.
How do you apprehend the dynamics in the Chinese market?
It’s more mobile certainly than North America. Everything is mobile, you can bypass your bank to make payments. Everybody is mobile, everybody has to be connected. I don’t think it’s an option for us, we’re just going to have to bite the bullet. And it takes some leadership. Has anybody heard of the piano bar on a Pan Am 747? Can you calculate the ROI on the piano bar? No.
So if you only do the ROI, then you’ll be directed in the wrong direction. Even [inflight entertainment], have we ever thought about whether it’s worth it to invest in IFE? It’s so expensive and the maintenance cost — also the weight. But we have to have it. In the end it’s doing the right thing.
As long as the whole cow makes you money, don’t worry about filet mignon.
Is the passenger better off with no connectivity or with having some degree of connectivity that sometimes doesn’t work?
I would choose the former. It was a terrible experience for me personally to know that they provide WiFi but I couldn’t use it.
Will the means of IFC monetization down the road within China be different on International routes?
I would image so. People who travel internationally on Air China and people who travel domestically are very different. International are probably a little more, I guess, elite, and a little better educated, so their needs are probably going to be different than the folks who travel domestically. So I would imagine yes, it would be different.