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In-flight internet the next frontier in airline travel

14 Jul 2016

Logging on after take-off

Fast, user-friendly internet connectivity on passenger planes is anticipated to be the next frontier for service providers and airlines globally, with the industry estimated to grow from $US1 billion to $US30 billion over the long term.

The challenge for companies seeking to gain a foothold in the industry is to develop technology that provides passengers with fast connections, can be easily installed in aircraft, and has a sound business model to drive usage.

Currently less than 10 per cent of passenger aircraft globally have internet connectivity.

While airlines across the US and Canada have access to a ground-to-air network, internet connections are limited on routes that cross multi-country continents, such as Europe, and large bodies of water.

The recent introduction of new high-throughput data satellites is expected to provide significant bandwidth improvement and a better passenger experience, Macquarie Securities analyst Andrew DeGasperi says.

To date, progress in this space has been slow due to the high cost associated with retrofitting aircraft with relevant hardware, the fast pace of change within the technology sector, and a market crowded with providers offering a range of different technologies and business models.

The challenge for companies seeking to gain a foothold in the industry is to develop technology that provides passengers with fast connections, and that can be easily installed in aircrafts, with a sound business model to drive usage.

“Airlines are cautious about committing to a connectivity solution that may be redundant within a decade,” DeGasperi says.

With a large number of providers in the market, it is also difficult for airlines to efficiently compare claims about internet speed and costs.

“Although airlines survey passengers on the service, it’s still difficult to gauge from this who has the better solution,” he says. “This has slowed the sales cycle significantly.”

DeGasperi expects there will be a period of industry consolidation, resulting in an extensive review of technologies and business models.

Advances in technology are likely to increase the number of passengers willing to pay for these services, says DeGasperi, which has the potential to see significant revenue increases for airlines.

For a full copy of the report, ‘In-flight entertainment and connectivity: fighting back’, please contact your Macquarie representative.

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