The role of connectivity in the aviation industry is changing the commercial aviation business as we know it. Passengers are demanding more from their airline experience, wanting to be connected throughout every step of the travel process from home, to airport, to inside the aircraft. While we know that more connected travel experiences can impact customer behavior and loyalty, little has been reported on the socio-economic impact of passenger connectivity on the industry, until recently.
In the Sky High Economics study, the London School of Economics and Political Science in partnership with Inmarsat Aviation looked at the revenue and economics of inflight passenger connectivity. The study estimated the market opportunity for broadband connectivity in the air to reach $130 billion by 2035.
The Connected Aviation Today team had the opportunity to sit down with Frederik van Essen, Senior Vice President, Aviation Strategy and Business Development at Inmarsat, to discuss how the connected network could drive a sizeable revenue opportunity for the commercial airline industry. Here is what van Essen shared with us:
Connected Aviation Today (CAT) Editors: What are some of the hurdles that may be impeding airlines from more quickly adopting high-quality connectivity solutions, orany connectivity solutions at all for that matter?
Frederik van Essen: Airlines themselves are the biggest barrier to adopting passenger connectivity. In order to understand the revenue opportunity that high-quality connectivity solutions have the potential to provide, airlines must adopt a retailer-mindset. This means thinking more holistically about how to monetize the captive audience on a flight as well as how connectivity may play a role in driving passenger loyalty.
In September, we published Chapter One of the Sky High Economics research project, in partnership with the London School of Economics, which identifies a number of key driving forces behind the adoption of high-quality connectivity solutions by airlines. In the past, the experience of the passenger never lived up to the promise of a reliable and fast connection and coverage was not guaranteed across all key flight routes. Now, though, everything has changed – new technologies dedicated to mobility, like our Global Xpress satellite network, are enabling an experience close to that which passengers experience on the ground across virtually all flight routes and at affordable price points.
Thanks to our growing data addiction, passengers are demanding inflight Wi-Fi in ever-greater numbers. Based on the stable, ubiquitous availability of next-generation inflight internet, forward thinking airlines increasingly focus on ancillary revenue opportunities enabled by passenger connectivity. The size of the global opportunity that this research has identified, at $130 billion, means that unanimous passenger connectivity is not a matter of “if” but “when”.
CAT Editors: We know why better connectivity would benefit passengers, but what about the airlines or their partners? What would they gain from more happy, connected customers?
Frederik van Essen: Sky High Economics explores the global economic opportunity of passenger connectivity. By 2035, connectivity is projected to create a $130 billion market driven by revenue from four sources – broadband access revenue, e-commerce, premium content and advertising.
The benefits of this new market will be seen by airlines and their partners, but airlines themselves will likely retain in excess of $30 billion annually from this. This is a significant share – almost as much as IATA forecasts the global airline industry profits for 2017 will be ($31.4 billion) and around the current size of the entire global gaming industry.
CAT Editors: One of the main complaints you hear about is the cost for in-flight Wi-Fi that’s spotty to say the least. Would improving that connectivity technology result in a significantly higher price point for passengers?
Frederik van Essen: No, technology breakthroughs will result in higher quality and lower price points. Spotty Wi-Fi availability has quickly established itself among the top airline complaints. Our GX network, which functions more like a cellular network in the sky than the spotty repurposed TV-satellites that are often used for current generation inflight connectivity, has resolved the reliability and speed issues.
As customer expectations change, we see airlines moving away from the unpopular Megabyte-pricing to fixed-price-per-flight, absorbing the cost of the service into the ticket price or even telecom providers including it in their mobile data packages. Airlines will decide how they will pass on the costs of their passenger connectivity, whereby other revenue streams will clearly offer new possibilities.
CAT Editors: Some of the ways that airlines are currently leveraging their connectivity options for passengers is through offerings like personal device entertainment options. What do you think are some of the ways they’ll leverage that connectivity in the future (especially considering they will greatly improve)?
Frederik van Essen: We identify four main areas of revenue opportunity for airlines in relation to passenger connectivity. As I mentioned before, these are: Broadband Access, E-commerce, Advertising and Premium Content revenues.
While inflight connectivity by no means signals the end of seat-back entertainment on long-haul flights just yet, it will be interesting to see how airlines develop their offering to cater to the ‘bring your own device’ trend, especially on single aisle planes that have never had IFE and are now flying longer segments than ever before.
CAT Editors: This report is the first in a series. What can we expect to learn about in future reports?
Frederik van Essen: The Sky High Economics research project is split into three chapters, with the next two chapters to be released in 2018. The first chapter explored the global economic impact of passenger connectivity, while the next chapter will look at the impact of connectivity on airline operations and safety and the final chapter will set out how connectivity will reshape passenger behavior and loyalty.
Interested in reading the full Sky High Economics Report? Click here: https://www.inmarsataviation.com/benefits/revenue-opportunities/The-sky-s-the-limit