PARIS — What do commercial airlines want from satellite capacity and in-flight-connectivity service providers? Help in understanding passenger usage for one, and maybe a way to charge only for capacity that’s used.
Good luck with that last one. Delta, Etihad and Norwegian Air Shuttle officials all said their in-flight-connectivity services had improved in the past couple of years but they also want help from service providers even as they move to airline-directed models.
Amanda Fish, manager of fleet initiatives at Delta Airlines; Quentin Couturier, senior manager for fleet development at Etihad Airways; and Boris Bubresko, vice president of business development at Norwegian Air Shuttle, discussed IFC issues with David Bruner, chief executive of Aviation Communications Advisors and formerly with Panasonic Avionics, during Euroconsult’s World Satellite Business Week Sept. 10.
How did Etihad decide on iFC?
Couturier: We’re the national carrier of UAE. We now have 125 airplanes. We serve 112 destinations. We have a very global network, and connect Asia with Europe. The entire fleet is connected today. Mostly WFi connectivity, as well as GSM service.
We were among the first airlines in the world to be 100% connected. It started off as a feature to enhance guest experience. The point was to provide connectivity as If it could pay for itself. That was good enough back then.
The initial investment we put in — half the fleet as line-fit, half as retrofit — had to be paid for by the usage amount. It wasn’t seen as an opportunity for revenue generation, which obviously has changed.
There’s a very different approach to connectivity now. We see it as a platform to support other opportunities. There’s no debate about whether or not to fit connectivity on the fleet. It’s part of the furniture. Just like we have seats, we have connectivity.
We have IFE [n-flight entertainment] systems, and these are debated now. People say: Do I need to put a screen on, and all this heavy equipment? But on connectivity I would say it’s a goal now. It’s more about how we optimize the way we do business using connectivity. There’s a lot more appetite from the operational side of the business to use it.
We’ve worked with two different vendors, OnAir s well as Panasonic. Panasonic is about two-thirds of the fleet. We’ve gone through different business models. Today we’re firmly engaged and we really expect to boost the take rate. We see true potential for it.
Bubresko: Back in 2002, we made a brave decision on using technology to survive. Most of our growth is built on data, and challenging the aviation industry.
Today we operate 150 aircraft, with 200-plus yet to be delivered. We have 500 routes, 150 destinations, flying 33 million passengers this year. We are the airline flying to the most U.S. cities.
WiFi for us started in 2008. At that time, the iPhone 3 was not for sale yet, and iPads were not for sale in Norway. So the whole system was built for PCs. But the passengers used their iPhones and their iPads. We learned that this was going to be a challenging road.
We decided to give away connectivity for free — not because we thought it was a smart move, but because we thought it was cheaper than selling it. Charging for the service would be difficult based on customer complaints. Building an organization just to handle that was not part of our wish list.
We had another first in Europe, video on demand and live TV on personal devices. When you are new, you want to build the brand.
One of the things we saw early on was that Americans and Europeans are quite different in their behavior. Our service provider was American. So in 2015 we decided we had to have control over the passenger experience. We moved the portal development in-house to speed up development and to be relevant to passengers.
Customer behavior changes rapidly. The system was designed for PCs, but the customers walked onboard with iPads and iPhones. All around the world everyone talked about Androids. What we saw was IOS. Nokia was quite famous back in 2009. When we started flying domestically in Finland, we saw Nokia phones were quite high. But it was decreasing week by week.
To keep up with customer behavior, you need to be in control. You have to understand the environment in which you’re operating and understand the customer.
Our business case was not based on passenger ancillary revenue. It was based purely on operational benefits. The passenger side was: If we’re lucky we’re going to make some money on the passengers, and if we are unlucky we still gain enough from the operational side.
That was the reason we decided to go for connectivity. We wanted to be a data-driven airline and use data in our daily operations. Have we reached that goal? No, we haven’t. One of the reasons is regulations and certification. We weren’t allowed to use connectivity in the cockpit. Now we are and we’re going to start being a data-driven airline.
Our goal is to combine the operational and commercial use of connectivity, because we believe it will maximize value and make us more efficient, and it’s going to create some revenue. Will it be easy going forward? Most likely not, because the customers are changing behavior.
Even the pilots are changing behavior. As a young company you have a lot of young pilots in the cockpit and they have a different approach to flying than the old guys. So we learn a lot from the younger pilots. They use apps which they find on the app store to help them fly, and that’s kind of a new situation for us, because they believe that flying could made easier than it currently is.
The relationship between airline and service providers
Bubresko: The fact that we give away WiFi for free I believe actually helped our provider. It was painful for them and us in the beginning. But the fact that we gave it away meant that we had volume and they had to bring more efficient use of the capacity.
What would Etihad change?
Couturier: In-flight connectivity and connectivity in general is propelling us into a world that the airline industry cannot keep up with. Even changing things like connectivity is very slow. By the time you install equipment on an aircraft it’s already two or three years old and you’ve just connected yourself for an extended period of time.
So flexibility would be number one. There’s a strong push for us to change the personalization capabilities, so the experience becomes very individual. Connectivity is a real part of that.
I see a big difference between what we want to achieve, what the technology is supposed to bring us, and the reality of things and the limitations that we face.
‘IFC deployment times are huge, horrible’
Couturier: We have a large IFC project and the deployment times are huge. It’s horrible. Even for a fleet like ours, which isn’t a thousand airplanes, you’re very quickly talking years rather than weeks or months to deploy something completely new. In a world of apps where everything is connected, everything is quick and your smartphone is obsolete within a year, how could we possibly keep up with that with the constraints we have in airlines?
Hopefully software capabilities will change that. For the longest time it was all about hardware. I cannot future-proof my hardware, I cannot change it fast enough. But I think there are software capabilities that allow us to optimize what we do with what we already have and also connect it with various different online systems.
For Delta, a desire for ‘dynamic satellite capacity leasing’
Fish: Flexibility is absolutely key. But if I had one wish, it would be dynamic capacity that delivered only what I need when I need it, so that you get the most out of the data that you’re using.
Right now it’s kind of like that beer tap that’s turned on and never turns off, and you’re only filling your beer when you’re up to it, and yet you’re paying for everything that’s coming through. Airlines don’t fly 24/7 at the same rate all the time. So the ability to meet the customers’ needs whenever they need it, but also to turn that tap off so you’re not just wasting the data.
Bruner: That’s a big wish there. I like it, but it’s a tough one. Everybody sees changes and sees the airlines need to take command rather than accepting the services provided by the provider. That’s a good thing, if the airline really knows what they want. How do you see changing the airline to have the capability to lead the way here?
Fish: We’re really at the beginning. We’re not in an airline-directed model today and there are a number of reasons why we aren’t.
Delta: Not if, but when we offer free WiFi
It’s not a question of if Delta will offer free WiFi, it’s really just when. To do that, it has to be airline-directed, because we have to find a way to cover the cost. It’s not going to be an airline just absorbing the cost of the data, it’s too high. It’s not something you can justify, at least in the United States. You can’t justify it on Wall Street, saying we’re going to take a multimillion-dollar hit every year because we’re going to offer WiFi for free.
Getting stability in the technology is going to be key in order to do that. Today we offer free messaging to all of our customers because that’s something we know we can support across all the technology.
I think it’s going to be airline-dependent, focused on the brand of the airline. It will be very important for us as Delta to make sure, if we’re seeking out partners as sponsors, that they’re on-brand. There will never be a point where Delta adopts what I call the NASCAR model, with tons of advertisements on portals so you can offer free WiFi. It will be very strategic.
Etihad: Shifting risk/reward from service provider to airline
Couturier: There’s been an evolution of the business model and the philosophy of connectivity. Originally it was about getting our fleet connected without the ambition of generating revenue. That has changed quite drastically. We went from a model where most of the risks and rewards were with the service provider, to a wholesale model where we find ourselves selling megabytes and having to forecast our needs in that area.
It takes a real effort from the airline to understand this industry. Airlines were wondering: What do I do now? I need to understand satellite technologies and whether I go for L-band or Ku- or Ka- and what I am committing to, and how long can I use it for?
The vendors are very open when it comes to business models. The service providers say: We can do anything — control the entire thing, do revenue share, any model you want.
So we have to invest in understanding the industry and the technologies. But we also ask what the suppliers can do to help on this end. We lacked an understanding of our the needs and the projections of the take-up rate and we, in a wholesale model, can understand how much we need.
This is something that only came with experience, I don’t believe we would have been ready to approach that model from the get-go if we had to do that from the start.
Etihad to suppliers: Help us understand IFC use patterns
I’d say the suppliers themselves can give us better guidance in understanding what’s going on with those networks, understanding the usage, what the passengers are doing with it to help us build better projections. Connectivity has always been a big promise, in many instances we haven’t reached that promise. We still have fairly low uptake rates. So it seems like something very easy to improve, but how do you get there?
Norwegian: We have no clue of bandwidth use when we’re flying
Bubresko: We are still very early in this business. We can’t do this alone as an airline, and the service provider can’t do this without partnering with us. We have no clue of bandwidth when we are flying. We have some sense of the passenger experience, but satellite bandwidth we know nothing about. I don’t really care if you use one satellite or four to operate our aircraft.
Lots of airline installations going on. Do you need more capacity?
Fish: On the satellite systems, probably not. But certainly the way that industry is evolving we will in the future. As long as all satellite launches go as planned from the capacity standpoint, we’ll probably be OK. Then it comes down to the flexibility of the onboard equipment. You can only get so much through the tube today, and we’ll be constrained there, quickly.
Couturier: We have a diversity of service providers and satellite providers, because we essentially define what is easily acceptable for any of us to get connectivity. And the price tells us how much data we can afford to provide to the guests. You try to be creative, and provide messaging packages at low cost.
We now understand better the amount of data our passengers consume. We don’t understand it as well for tomorrow. So until we get better forecasts, we don’t need a huge amount of capacity.
People tell me I could be hundred times faster and it wouldn’t be enough. The truth is the business model won’t work unless the price per gigabit goes down significantly. So for me, that’s not the question. We do need more capacity because everyone wants more. But how do we get to a price point that allows us for a reasonable package price or potentially no price at all to make it a viable equation? And today I don’t think that points to a huge amount of additional capacity.
Service provider financials are stressed. Do the airlines know or care?
Fish: This is what keeps me up at night. It’s something we spend a lot of time making sure we understand. It’s part of the reason we’re digging so much further into the connectivity space to really understand it.
Two years ago we would not have been prepared at all, should something go sideways. We’re far better today. Should something catastrophic happen, we’re going to feel the effects of it, absolutely. It’s why we’re a founding member of the Seamless Air Alliance. If we’re going to protect our future then we need to be invested in what the future looks like — shaping what that next technology is and how it affects our fleet.
Couturier: The level of awareness of that situation I would say in our case is really high because we’re constantly in touch with all the suppliers and service providers. We’re also a government entity and have a mandate to be open as far as supplier selection, and we have to openly run selection processes. That puts us in a high level of awareness.
On the other hand, future-proofing is hard to put in place. We’re airline that deals with a lot of line-fits. It’s difficult to influence the choices that are even offered to you from service providers and satellites and manufacturers.
And you normally have to commit to a long-term partnership. We try and protect ourselves by partnering with the right people. But like Amanda said: If something was to go terribly wrong I think we would suffer badly before we could recover.
We were one of the early adopters of Connexion by Boeing. This was a different time. It was too early. But it went overnight from something that worked really well and was technically pretty good. And then it was switched off and we had an antenna we didn’t know what to do with.
But I understand that some of the early adopters of Connection by Boeing went out and converted that into other solutions without entirely reinventing them. So for both the service provider and the hardware manufacturer, there are ways to recover from that. And we’ll start seeing more and more mixtures of service providers and hardware providers. It’s going in the right direction, it’s just slow.
Bubresko: We follow the industry but we can’t really do anything about it. We can only work with the providers we have, and we want to work with them to make them and ourselves successful.