In-Flight Cellular Services May Not Be Profitable for Airlines, Slowing Future Deployment

Sep 29, 2006, 01:00 ET from Telecom, Media and Finance Associates, Inc.

    MENLO PARK, Calif., Sept. 29 /PRNewswire/ -- A new report from Telecom,
 Media and Finance Associates, Inc. (TMF Associates), "The Market for
 In-Flight Passenger Communications: Lessons from Connexion," forecasts that
 widespread deployment of in-flight cellular services could be limited to
 those airlines who can justify investment in passenger connectivity as a
 service differentiator, since many airlines may be unable to demonstrate a
 compelling direct return on investment in these services.
     While rapid deployment of in-flight cellular could produce annual
 end-user revenues of more than $600M from 4500 equipped planes by 2016, a
 failure to generate sufficient ROI for airlines may result in revenues of
 less than $200M 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."
     The report provides airlines, equipment manufacturers, service
 providers and analysts with a comprehensive re-evaluation of the in-flight
 passenger connectivity market and the lessons from the failure of
 Connexion-by-Boeing. It discusses proposed connectivity services and the
 views of airlines, passengers and regulators, and analyzes the business air
 traveler market in detail, including spending on comparable existing
 services. The report examines rapid and slow deployment scenarios for
 in-flight connectivity, analyzes the key factors that will determine which
 scenario is realized, and provides ten-year market forecasts of deployment
 and revenues for in-flight cellular and Internet access services by region
 of the world and passenger type. Conclusions are drawn about the size of
 the opportunity and the implications for airlines, passengers and service
     For more information about the report, see
     TMF Associates, headquartered in Menlo Park, California, is a leading
 consulting and research firm providing business and technical analysis in
 satellite, wireless and broadband telecommunications. The firm specializes
 in Mobile Satellite Services, including Ancillary Terrestrial Component
 (ATC) technology, and works with operators, investors and equipment
 manufacturers to analyze complex market issues. For additional information,
 please visit
      Tim Farrar, President
      Telecom, Media and Finance Associates, Inc.
      650-839-0376 or
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SOURCE Telecom, Media and Finance Associates, Inc.