In the previous issues of our COVID-19 blog (link) we discussed the potential of COVID-19 to accelerate the digitization of the airline industry, and how, in the wake of the crisis, the underpinning connectivity can be provided to the entire fleet in a new telco model.
To understand how this can really unlock ancillary revenue generation and operational efficiency savings, let’s first recap on the status quo. To date, airlines have largely failed to make Internet access in the cabin a profitable service for the following reasons:
- Most passengers reject the combination of high session prices and poor performance; thus, passenger take-up and subsequent airline revenue from Wi-Fi sessions stays far below the cost of providing this service.
- Making Wi-Fi free increases passenger adoption (although the performance remains poor), but in the absence of revenues the airline business case turns even more red, unless the cost can be offset by other operational benefits.
- For those passengers who connect, airlines throttle the throughput or cap the data volume to reduce excessive data charges of their satellite services provider.
Shifting this conundrum from airlines to Inflight Connectivity providers so far has not solved it either. As a result, passengers are frustrated, and aircraft are carrying along satellite systems with mediocre value creation at best.
By relying on Air-to-Ground (A2G) for connecting commercial aircraft, this vicious circle can be turned into a virtuous one:
- Thanks to the performance of A2G (high throughput and low latency), everyone in the cabin can enjoy broadband Internet speeds.
- With Hotspot 2.0, passengers automatically connect and get billed through their regular communication providers on the ground, instead of having to sign up and leave credit card details at a portal.
- The low cost of the A2G service allows airlines to shift today’s high-price-low-adoption paradigm towards low-price-high adoption or make Wi-Fi free altogether and fund it elsewise.
Fund it elsewise? Once everyone in the cabin connects, marketeers can turn the aircraft into a value creation engine and apply an array of digital engagement means:
- White-label Wi-Fi: with Hotspot 2.0, passengers can automatically connect to Wi-Fi services through their regular communication providers on the ground, who compensate the airline in the form of roaming fees, without the airline having to invest into marketing the service.
- Bits & Pretzels: not only the name of a famous festival in Germany, but also a new way for airlines to sell inflight Wi-Fi alongside refreshments, ordered and paid online before the flight, or straight from the seat after boarding.
- Advertisements: with a high take-up rate and the ability for everyone to browse the Internet and access rich media content, the number of ads that can be presented to passengers during a flight increases significantly. By adding the unique travel context, the value of an impression can be further amplified.
- Partner offers and vouchers: airline partners, for example, touristic attractions and ground transportation companies at the destination, can sell special packages and vouchers with exclusive discounts or other benefits in the cabin.
- E-commerce: the inflight shop can be converted into a digital mall, which not only includes airline products but also the offering of shops at the arrival airport. Purchases can be collected at the arrival gate, or inside the airport shops.
Real broadband connectivity can also unlock operational efficiency savings. With A2G, such savings become inherently easier for airlines to realize, due to the following reasons:
- Significantly more aircraft data can be transferred at lower cost, thanks to the high throughput and flat data charges of A2G. Modern aircraft generate 10 to 100 times more data than older ones, translating to 1 to 10 GB of data per flight hour. For the first time, due to the A2G capacity and flat data charges, airlines could transfer this data in real time to improve operational efficiency and reduce costs
- Operational efficiency benefits are not eaten up by the cost of broadband connectivity. For example, fuel savings achieved by flight path optimization are not offset by the incremental fuel burn induced by the weight and drag of satellite systems.
- Broadband connectivity can be cost-efficiently provided to the entire fleet, including also regional jets and turboprops, thanks to the compactness of the A2G terminal. Beyond per-aircraft savings, this leads to additional fleet-level efficiency gains and savings.
The use case theater for operational connectivity is ample, here are just a few prominent examples:
- Data offload: as a quick win, an A2G system can offload most of the data traffic from legacy narrowband systems, to not only transfer it cheaper but also much more of it.
- Predictive maintenance: continuous aircraft health monitoring can reduce disruptions and save maintenance cost due to improved dispatch reliability, No Fault Found reduction, inventory reduction, and higher labor productivity.
- Reduced fuel consumption: flight paths can be optimized with real time weather and traffic information. On the ground, idling can be avoided through integrated operations with airports.
- Weight reduction: heavy onboard systems can be replaced with weightless cloud services, for example, streaming services instead of inflight entertainment systems, online shopping instead of trolley duty-free sales, and cloud storage instead of data recorders.
- End-to-end process optimization: internal and external processes, such as turnarounds, can be optimized significantly once being data-driven and partly or fully automated.
This 3rd edition marks the end of our little blog series on COVID-19. Some 3 months have passed since the first release in early April. Like said then, any crisis not only causes damage but also serves as a catalyst for change and transformation. When looking back in a year from now, we might see COVID-19 as an inflection point: towards real broadband services in the sky.
Many happy landings!
About the author: Dirk Lindemeier is Co-Founder and Chief Commercial Officer of SkyFive. He previously spent 19 years with Nokia in telecommunications, and before that 10 years in military aviation. Until today, Dirk also enjoys being a private pilot.