Home / Networking / Gogo preps for free in-flight wi-fi as Delta trial holds promise

Gogo preps for free in-flight wi-fi as Delta trial holds promise


Delta Airlines’ trial of free wi-fi on 55 domestic flights on Gogo’s network may be a precursor to more adoption of in-flight broadband, a new economic model and capacity improvements.

Gogo reported second quarter earnings on Thursday and the stock surged on a better-than-expected outlook. The in-flight connectivity provider reported a net loss of $84 million with revenue of $213.7 million. Adjusted EBITDA of $37.8 million was well ahead of expectations.

The company also increased its 2019 EBITDA outlook to $105 million to $115 million and said it expects meaningful annual free cash flow in 2021.

Gogo’s results cheered investors given the company has been spending to roll out its 2Ku satellite network infrastructure. That network promises more speed and reliability and Gogo said it has 1,216 aircraft online on 2Ku. There is a 2Ku backlog of about 900 aircraft in the queue. 2Ku complements a North American terrestrial network as well as ground assets. 

But many of the questions on Gogo’s conference call revolved around Delta’s free wi-fi test in May. Delta CEO Edward Bastian mentioned the free wi-fi trial in the context of a bevy of technology investments.

We took the first step towards bringing free wi-fi to life by completing a 2-week test, and we’ll conduct more testing in the months ahead to create an experience customers prefer. We are committed to providing the best in-flight entertainment in the sky, and it will be another point of differentiation.

Delta’s trial is pretty important to Gogo given the airline represents a third of revenue. Gogo’s base contracts today have a revenue share based on service purchased. The airline controls pricing.

Under the free wi-fi model, airlines may buy bandwidth and pay per passenger. In Gogo’s regulatory filing it noted:

We are currently in negotiations with certain airline partners regarding amendments to our existing contracts that would enable such partners to offer free Gogo service to their passengers under our airline directed business model and other airline partners may elect to move to a free-to-passengers business model. We expect commercial models and contract terms to continue to evolve, and we anticipate that third-party payers (including airlines) will generate an increasing portion of our revenue and that the portion of our revenue paid by passengers using our service will decline.

The move to free wi-fi is no small issue for Gogo. Analysts asked about revenue going forward as well as capacity constraints. Here are some key answers from Gogo on the topic:

Can the 2Ku network handle free wi-fi? Gogo CEO Oakleigh Thorne said:

The good news about 2Ku is that we sold it as future-proof, and it really is future-proof. So the ramp-up on the aircraft for a 2Ku aircraft is very minimal. On the satellite capacity — in satellite capacity, yes, we have to ramp up satellite capacity, that’s for sure. The other good thing about the 2Ku antenna, we talked about it being future-proof, and we think that it is very conducive to future technologies.

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Gogo

So there aren’t technology impediments if the investment is made? Thorne said:

We are making some software improvements in terms of portals and things like that. That all has to change when you go to free. I mean, you don’t need to get the person’s credit card number anymore and things like that. So there’s some software development involved, but that’s relatively minimal.

How many free wi-fi airlines does Gogo have today?

Two for now, but Thorne noted that the company has “made substantial progress” ramping up support for free wi-fi airlines. “Going to full free, we obviously have things we need to grow, like our satellite capacity and other things, to be able to really provision that,” said Thorne, who added that Gogo has deployed a bevy of network management tools.

What’s the role of satellite industry?

Thorne said that satellite providers see in-flight connectivity as a big market so the industry is working with Gogo to optimize networks with low earth orbit providers.

While there are some unknowns about Gogo’s financials if airlines move to free wi-fi, there is likely to be revenue upside.

William Blair analyst Louie DiPalma said in a research note:

As part of the free wi-fi rollout, Gogo and Delta will need to restructure their current master contract and determine what price Delta is going to pay Gogo for each passenger that uses the complimentary service. We believe the new deal can cause a significant step function increase to Gogo’s revenue.

That Delta contract will serve as a template for Gogo’s other customers, which will have to follow Delta’s move. 

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