June 3-4, 2014 Renaissance Long Beach Hotel Long Beach, CA. Show me the money! Tim Farrar TMF Associates

Transcription

1 Show me the money! Tim Farrar TMF Associates

2 Deployment is accelerating 6,000 All pax connectivity - rapid deployment 5,000 Equipped aircraft 4,000 3,000 2,000 1, US domestic Other domestic Long haul Intra-European intl Other intl Actual TMF Associates 2006 forecast vs actual

3 dominated by North America North America 2,647 Equipped passenger aircra/ EOY 2013 RoW 533

4 However, revenue is lagging All pax connectivity revs - rapid deployment 1, Passenger revenues ($M) US domestic Other domestic Long haul Intra-European intl Other intl Actual TMF Associates 2006 forecast vs actual

5 25% due to very low take rates Internet access take rate - rapid deployment 20% Take rate (%) 15% 10% 5% 0% Predicted (all routes) Actual (Gogo NA) TMF Associates 2006 forecast vs actual

6 Some history: 2006 Global air travelers prefer airlines that offer in- flight Internet connec8vity and even adjust their travel plans and choice of airline to be on Internet- connected flights, according to a survey released today by Connexion by Boeing * The recent research findings confirm that we're on target to provide passengers with the best in- flight connec8vity experience possible, and to provide airlines with new ways to differen8ate their brand and retain and ahract new customers BUT On average, survey par8cipants have flown 23 round trips within the past year and typically travel for business reasons (85 percent of those surveyed)* SO We re seeing penetra:on numbers in the low single digits a/er two- plus years of commercial service, which isn t in line with our expecta:ons for the business * Service-Is-Changing-the-Way-People-Travel

7 and now Consumer demand for consistent, global in- flight Wi- Fi is greater than ever, so much so that fliers are willing to trade current comforts for more connec8vity BUT Source: Survey of Americans, Londoners and Singaporeans 18+ years of age who have used in- flight Wi- Fi at least once in the last 12 months Average Gogo Customer* Average Traveler Avg Domes8c Business Flights / Year Avg Domes8c Leisure Flights / Year SO Gogo s Problem: Inflight Wi- Fi Is Expensive, and No One Uses It Honeywell survey, Sept 2013 *2011 survey by Directive Analytics, quoted in Gogo S-1 Amendment 4

8 What is the solution? [1] Possible, but not for Gogo itself Gogo Vision already failing (failed?) Who will sponsor free services? Gogo IPO roadshow presentation, June 2013

9 What is the solution? [2] Does content help to sell connec:vity? Saved by DISH sponsorship (for now?) Why is making no margin on connec:vity a good idea? Nominal portal revs Global Eagle Entertainment investor call, November 27, 2012

10 The good news Frequent business travelers want connec8vity op8ons inflight, and (all else being equal) prefer airlines offering connec8vity Business- focused (or differen:ated) airlines need to :ck the box Fleetwide deployment (so passengers know connec8vity will be available) has a modest posi8ve effect on take rates Cri:cal mass can be achieved, further boos:ng awareness and take rates Business travelers who have to get work done are rela8vely price insensi8ve A high priced, limited take rate model can be viable Airlines also have a budget for passenger ameni8es, especially on long haul Airlines willing to pay for equipment and may (par:ally) subsidize service

11 and the bad Leisure travelers won t pay for connec8vity and sponsored business model will not generate sufficient revenues (with possible excep8on of DISH- Southwest) Will airlines want to subsidize service for less valuable travelers? Though percep8on of low quality, no evidence to date that business travelers will choose one airline over another for beher/cheaper connec8vity Is there a reason for airlines to pay for equipment upgrades? Willingness to pay highly correlated with flight length (>1500 miles) Will short distances (e.g. Japan, Con:nental Europe) limit opportunity? No cri8cal mass in short haul markets outside North America Do short haul airlines (unless needing differen:ator) want to invest?

12 Is better technology the answer? YES BUT Cooper s Law: Cellular efficiency doubles every 30 months Consumer satellite broadband will always be worse than fiber, cable, 4G Inflight satellite capacity will always cost more per bit than consumer sat BB SO Inflight WiFi will not match consumer expecta:ons (driven by terrestrial) on performance and cost per bit (in absence of radical ATG advances) It is a tool for business travelers who need to be connected (and will pay)

13 Viable long term architectures Nested capacity (Panasonic)* Global overlay + regional networks (Inmarsat) ATG or satellite? * Final-Copy.pdf

14 In the end, its all about who pays PASSENGERS Gogo AIRLINES Panasonic OnAir? LiveTV (JetBlue trial) Row44 SPONSORS Sources of service revenues by provider

15 So what s the end game? PASSENGERS Viable long term revenue mix Main rev source => expensive => limited take rate AIRLINES SPONSORS Par:al subsidy, unlikely free for all pax Maybe video, unlikely for connec:vity

16 Who is left standing? Connec:vity Satellite Operators IFE/Systems Suppliers Cellular

17 Contact us Tim Farrar Telecom, Media and Finance Associates, Inc Haven Avenue, Suite 113 Menlo Park CA Tel: Cell: Fax: Web: Blog: blog.tmfassociates.com