In-Flight Mobile Phones May Not Be Economically Viable

A new report from TMF Associates 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 US$600 million from 4,500 equipped planes by 2016, a failure to generate sufficient ROI for airlines may result in revenues of less than US$200 million from under 1,800 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."

Posted to the site on 3rd October 2006