Whether it’s Ku-band or Ka-band, there is little doubt that airlines will need satellite capacity, and lots of it, to serve passengers. However, is there room in the market for all of these different players, and how do the key satellite providers see it?
If there is one thing that key executives at Inmarsat, Eutelsat, SES and ViaSat all agree on, it is that this market is not going away any time soon. Elias Zaccack, SVP at SES, believes Latin America, North America, Europe and the Middle East continue to drive the aviation markets, and SES is seeing upgrade requirements for more throughput and better connectivity across North America. Zaccack believes the next phase of IFC is going to increasingly rely on flexible platforms and bandwidth capable of accommodating changing flight paths, passenger demands and ever-changing airline operations. He says global coverage will be the key to success here.
For SES, the market is a huge opportunity. “The overall mobility sector, serving aero and maritime, continues to be SES’ highest growth segment, following a 95 percent growth rate in 2016,” he says. “SES has seen 70 percent growth in committed mobility capacity across our fleet since 2014.”
For Eutelsat, it is a similar story. Jags Burhm, SVP of Aero and Global Mobility at Eutelsat, says the IFEC market is “shaping up well” for the company and highlights the fact that the capacity required by this vertical in the last two years has almost doubled — it is expected that 34% of all commercial aircraft will be connected by 2025. New to the role, Burhm believes Eutelsat is progressing well on the capacity sales side.
It is a similar line of optimism with both Inmarsat and ViaSat. David Coiley, VP of Strategy and External Relations at Inmarsat Aviation, goes a step further by saying that 2017 will likely be “transformational” for Inmarsat’s aviation business. The operator has launched its Global Xpress for Aviation service, a mobile broadband satellite service platform delivered by a single operator; Coiley says it is like a cellular network in the sky. “It’s the hottest thing in airline IFC and it’s now flying on Lufthansa and Austrian Airlines, and the most successful connectivity network launch in business aviation history with STCs on every major business jet platform and over 150 installs in place or underway,” he says. “We will also be launching the European Aviation Network, which will give European airline passengers an unrivaled internet experience on a regional basis that will include an air-to-ground antenna that is lighter and smaller in a materially significant manner.”
For ViaSat, 2016 was a stellar year with several new contracts signed and sealed. However, Don Buchman, VP and general manager of Commercial Mobility at ViaSat, says there is already “good momentum” for the operator as it heads into 2017. The company has ambitious plans with its ViaSat-3 constellation, a three-satellite global constellation that ViaSat expects to be fully operational by 2021, which Buchman believes is in line with many airline decision-making time lines around the world. “There are still the hotspots today, though, including short-haul demand in the United States, Europe and East Asia,” he says. “There is also quite a bit of long-haul interest, too, which can be satisfied by the capacity we are bringing to transatlantic flights once ViaSat-2 service is launched. Demand for high-speed, high capacity connectivity on long-haul flights becomes a reality only we can best serve, starting in 2017.”
Types of Satellite Capacity
Even though we are now many years into the IFC market, airlines are often faced with a number of decisions to make when deciding the foundations of their IFC strategy. Coiley is convinced Inmarsat made the right call going with Ka-band with Global Xpress. “Without doubt, Ka-band was the best route for us to take due to the available spectrum, which can absorb the anticipated demand growth – unlike other spectrum choices that will be far more restricted in terms of growth potential,” he says. “Like congested roads, Ka-band doesn’t give you the headaches that you get with the heavily used Ku-band. Additionally, service economics are allowing Inmarsat to bring on the type of services and capacity that airlines need, when and where they need it.”
Understandably, not all agree that this is the right and only way to go. Zaccack says with SES having invested billions in its hybrid Ku-band and Ka-band HTS, and its O3b HTS Ka-band constellation, that SES is band agnostic. “We believe in providing multi-orbit, multi-band differentiated capacity to meet the diverse needs of our service provider customers and ultimately the airlines’ specific needs, and SES is very well positioned to meet those requirements with a robust, scalable mix of reliable Ku- and Ka-band capacity,” he says.
Eutelsat is also offering a dual approach here. “Whether it’s Ka-band that becomes the band airlines use most or Ku-HTS won’t really affect Eutelsat as we have active plans in both bands,” says Burhm. “Ultimately, it will come down to deal economics and the required service performance of the airlines.” Burhm says that airlines believe that as long as hardware does what it needs to, they are neutral on Ku- or Ka-band.
ViaSat is also a big flag bearer for Ka-band. Buchman says the operator has chosen it because of its capacity density, which enables ViaSat to deliver more capacity at the right price point to its airline customers, ultimately benefiting the passenger. “When we look at all of the HTS for Ku-band, they are just not solving the problem, which is how to deliver high quality, high speed in-flight internet service economically,” he says. “That’s because they are putting up lower density satellites that have similar capacity as our 10-plus-year-old satellites and about 200 to 400 times less capacity than our ViaSat-3 generation satellites, at about the same launch costs.”
Airlines want the option to diversify their IFC platform and their risks. The first-generation contracts were based on one capacity provider. What we’re seeing now is a number of airlines splitting their IFC services among two to three providers and solutions.
—Elias Zaccack, SES
It seems regardless of what infrastructure on which you place your bet, there should be plenty of business for all of the major satellite operators in IFC. The market could also see some new trends. One Eutelsat is seeing is more mature airlines asking for a more unbundled approach. Burhm explains, “If [the airlines] have hardware on the aircraft, they would like to select certain services from different suppliers, or they will drive their IFC supplier to align products to their expectations.”
Burhm says it is difficult to estimate how this trend will progress. “It is very similar to buying traditional IFE: airlines buy hardware from Thales, Panasonic, Rockwell and source content from whichever company works for them,” he adds.
Burhm says the value proposition in the future for airlines and IFEC is trending toward value-added services. He says operational and Big Data solutions, and OTT-enriched content solutions are projected to be key areas that will influence the way the IFEC market develops. “Broadcast content may become a mobility value add area in the future as satellite providers build solutions that deliver enriched media direct to user devices. The emergence of these services should increase opportunities for mobility across all sectors. The aero market is projected to be a 900 million euros ($961 million) market by 2025,” he adds.
Buchman says the convergence of connectivity and entertainment is really the key trend, especially on narrow-bodied aircraft. It is one trend ViaSat sees. “You are starting to see this play out with carriers publicly announcing they are forgoing seatbacks on future new aircraft. Passengers are already coming on board with their own personal devices loaded with their own personal content, entertainment choices, applications and connectivity — and our system marries well to providing a similar at-home entertainment and connectivity experience gate-to-gate. We have put so much capacity in space and so much capacity on our production floor, which will enable us to keep up with future demand,” he says.
Coiley says the key trend is the near universal focus on IFC among the major carriers, with airlines and their passengers considering what IFC could deliver in terms of the in-flight experience. Coiley admits the operator expects IFE to be substituted for streamed content over IFC, acceleration of IOT and cloud-based flight operations applications. “This is a level of service that has not been previously seen, in terms of availability, reliability and performance,” he adds.
He believes passenger connectivity is moving beyond the novelty stage to a service on which customers can rely. Inmarsat is investing to secure by 2025 a meaningful share of the connected aviation market, which is predicted to comprise some 19,000 commercial aircraft. “Our networks, services and solutions are helping airlines to realize the benefits of the ‘Digital Society’ in the sky. This represents a major step change in the data connectivity needs both at the passenger level but also the airline and wider industry level,” he adds.
Second Generation of Contracts
One of the interesting questions now is whether and if airlines are looking to make a change in terms of which service provider they use. This could, of course, have ramifications for the type of satellite capacity they could use to provide connectivity. Zaccack says we are beginning to see the start of a second generation of contracts in North America. “Understandably, airlines at least want the option to diversify their IFC platform and their risks. The first-generation contracts were based on one capacity provider. What we’re seeing now is a number of airlines splitting their IFC services among two to three providers and solutions. SES provides over 99% coverage of the global aeronautical traffic, and we have global capacity agreements with all of the leading IFC service providers,” he says.
Buchman believes that ViaSat is already benefiting from this second wave. He points to recent contract wins with the likes of American Airlines, Qantas, Finnair and SAS, as prime examples. In terms of where it goes next, he adds, “What we’re seeing now is two-fold: a new era of second-generation contracts as well as an uptick in new first-generation contracts, where a region did not have a good enough product offering before, or the airline was waiting for the right product offering to become available. We are in firmly into that next generation.”
Airlines are typically in contracts on a five- to seven-year cycle, according to Burhm. He believes there is a set of airlines that have all the hardware installed and may want to procure certain service components directly. He thinks that over the next four years, some airlines that are already connected may be looking at their options. “They may continue with their installed hardware or could explore alternative procurement options in order to reduce their operational expenditure,” he says.
With demand for bandwidth showing no signs of slowing down, the satellite industry will continue to work with service providers and airlines to make sure it can meet the growing needs for capacity. Zaccack says from SES’ perspective, it looks more like a tremendous opportunity than a challenge; but that finding a sweet-spot business model that enables airlines to leverage tailored capacity to turn their in-flight connectivity offerings into a profit center is a challenge. Right now, the pricing models are as varied as the airlines themselves, but the key to airline success and ultimately connected passenger satisfaction is making IFC a moneymaking service for the airlines, he says.
Regionally, Burhm believes Asia Pacific currently presents the largest opportunity for the IFEC supply side. The fastest growing airlines and the majority of all aircraft deliveries in the next 10 years is coming to this region. “It is projected that over 8,000 aircraft will be delivered to the APAC region by 2034. Europe and the Middle East are mixed markets, and in the next five years it is expected that Middle Eastern airlines will go through a large IFEC procurement cycle as existing connectivity contracts enter renewal phases,” he says. “Latin America and Africa are growing markets, but the overall number of aircraft in each of these markets is at least 25 percent or less of APAC, Europe and Middle East markets. It is projected that 1,000 new aircraft will be delivered in North America and a further 1,000 will be delivered within Latin America.” GCA