PARIS — Satellite in-flight-connectivity provider Gogo said its lease of the entire capacity of an aging SES-owned satellite and the satellite’s move over the Pacific Ocean region is an example of why Ku-band trumps Ka-band in today’s market.
Gogo Chief Executive Michael Small said the company’s purchase of capacity from nine satellite fleet operators, led by SES and Intelsat, gives it more than enough bandwidth to handle current and near-term demand and provide backup capacity that Ka-band cannot offer.
The most recent lease was of Luxembourg-based SES’s AMC-4 satellite, which SES has agreed to move over the Pacific Ocean to bolster Gogo’s bandwidth for flights to and from Hawaii and Alaska.
“This flexibility, depth of capacity and redundancy does not exist in the Ka-band,” Small said May 4 during a conference call with investors. Small references several large cities, including Honolulu, Sao Paulo and Sydney, which he said are “not adequately covered with Ka.”
If that is the case today it won’t be for long as several satellite operators are fielding Ka-band capacity over South America and Australia
The advantage of bandwidth-lease contract portability
Small said the AMC-4 capacity cost “is consistent with our objective to get over 50% service margin in the rest of the world, as we are doing today in North America,” adding that the contracts with SES and Intelsat allow Gogo to move capacity between geographic areas based on demand.
“This capacity is highly fungible,” he said. “If we buy more like AMC-4, we will now say to SES and Intelsat: ‘We need fewer spot beams.’”
15 Mbps/passenger, 98% of flight hours, 98% availability
Gogo is rolling out its 2Ku service, which the company says is already delivering to passenger what Small said is the airlines’ key metric: 15 Mbps or more per connected passenger, with 98 percent of global flight hours and 98 percent service availability.
Gogo’s 2Ku had been installed on more than 170 aircraft as of April 30. The company said its installation teams are now the fastest in the industry and that 450-550 aircraft will be equipped with 2Ku by the end of the year. Contracted aircraft yet to be outfitted totaled more than 1,430 as of April 30, Gogo said.
Installations typically slow during the summer as airlines meet a peak in passenger demand and resist taking a plane out of service.
Deploying 2Ku over North America allows Gogo to relieve traffic strains on its existing air-to-ground (ATG) network of towers.
The result, the company said, is an increasing percentage of passengers that use the service on any given flight. From 6.5 percent a year ago, the take rate for the three months ending March 31 was 8.3 percent in North America from the 2,700 aircraft now equipped with Gogo’s service, either ATG or satellite-delivered.
Passenger connectivity revenue grew 14% during the quarter, and average monthly revenue per commercial aircraft was up 6%, to $142,000. Small said further increases are expected during the year.
Losses outside North America to peak in 2017 and ease starting 2018
Gogo’s commercial airline business outside North America is earlier in the 2Ku growth cycle. As of March 31, equipped aircraft totaled 281, up from just 44 planes a year earlier. Gogo has been awarded contract for 650 aircraft outside North America and predicts it will complete 150 installations this year.
Annualized monthly revenue per commercial aircraft outside North America was $202,000, bolstered by airline-paid and third-party-paid services.
As it races to install as many planes as possible, Gogo is incurring substantial cost given the relatively low installed customer base compared to North America. The company’s reported a $27 million loss, up from $25 million in the three months ending Dec. 31, on increased expenses of buying and installing 2Ku gear.
Incoming Gogo Chief Financial Officer Barry Rowan said 2017 would be the peak loss year for the non-North American commercial aircraft segment as an increased fleet of revenue-generations planes and per-plane revenue growth absorbs more of the installation costs starting in 2018.
Cash capex for all of Gogo in the first three months of 2017 was $59 million, more than double the previous year’s as Gogo pushes the accelerator in 2Ku installations.
Gogo’s Gogo Biz 4G service for business aviation, an upgrade of its current ATG network, is expected to start commercial service by the middle of this year.
Gogo Chief Operating Officer John Wade said the 4G service had won substantial support in the business aviation market and that Gogo sees no immediate threat from SmartSky Networks, which has raised more than $200 million to deploy its own terrestrial towers in North America for business aviation.
Wade said Gogo’s ATG experience suggests it will require substantially more investment than $200 million to deploy a full ATG network.
Gogo said its next-generation ATG network in laboratory tests has registered speeds of 136 Mbps. Small said this may be fast enough for most users, but that the need for uninterrupted coverage as planes fly to the Caribbean or to Mexico or Hawaii argues for 2Ku installations on many of these planes as well.
Gogo said 2Ku will match the performance of the upgraded ATG.