The London School of Economics has made a strong business case for the future of Inflight Connectivity (IFC), predicting a market worth $130 billion by 2035, and contribute $30 billion to airline revenue.
For 2018, the study values the ancillary revenue contribution to airlines from IFC at $0.9 billion, but LSE predicts a dramatic rise over the next seventeen years as the technology and its applications scale to meet market potential.
LSE predicts an increase of 2,005% in airline IFC revenue per passenger from $0.23 in 2018 to $4.00 by 2035.
While an additional $4.00 in revenue per passenger may still seem like a small amount, it’s important to keep in mind that IATA reported an industry average net profit per passenger of $7.69 at its last Annual General Meeting this June.
LSE values the current per-passenger share of ancillary revenue—duty free, inflight retail, food and beverage sales—at $17.
The LSE study, independently originated by LSE and funded by Inmarsat, also breaks down estimates of the types of ancillary opportunities in the IFC market and their relative contributions to airline revenue.
Revenue from broadband access alone is estimated to reach $822 million in 2018, $9 billion by 2028, and $15.9 billion by 2035.
Targeted advertising revenue is projected at $26 million in 2018, $3 billion by 2028, and increase to $6.8 billion by 2035.
E-commerce and destination shopping will be worth $36 million in 2018, rising $2.9 billion by 2028, and reach $6 billion by 2035, according to the LSE study.
Premium content and entertainment streaming will be worth $39 million in 2018, reach $0.7 billion by 2028 and rise to $1.4 billion by 2035.
Dr Alexander Grous, department of media and communications, LSE and author of Sky High Economics says:
“Globally, if airlines can provide a reliable broadband connection, it will be the catalyst for rolling out more creative advertising, content and e-commerce packages.
"We will see innovative deals struck, partnerships formed and business models fundamentally changed for new players to lay claim to the $100 billion opportunity away from airlines.
"Broadband-enabled ancillary revenue has the potential to shape a whole new market and it’s something airlines need to be planning for right now.”
Currently, only 53 airlines offer inflight Wi-Fi, but LSE and Inmarsat believe it will be commonly available on nearly all commercial flights by 2035. Full service carriers are expected to take the dominant share (63%) of this future IFC revenue, with LCCs earning 37%.
By world region, the largest market will be in Asia Pacific, reaching $10.3 billion in revenue by 2035, with Europe and Russia in second place at $8.2 billion and North America, which took the lead in the initial introduction of IFC inflight as a common service, in third place at $7.6 billion by 2035.
For optimum revenue potential the LSE study finds that IFC will need to evolve to offer a ready-supply of reliable high-quality broadband covering all key flight routes with guaranteed speed to the aircraft.
Airlines will also need to adopt a retailer mindset for their IFC offering and adopt an enhanced data infrastructure which will help them capitalize on the ancillary opportunities connectivity affords.
Frederik van Essen, senior vice president strategy & business development, Inmarsat Aviation, says:
“As airlines start to act more like retailers, they will realize the benefits of closing the inflight connectivity gap. Doing so will lead to unlocking $15 billion per year in additional ancillary revenues within the next decade, one of the biggest sources of growth.
"The key to this potential and getting to the eventual $30 billion revenues, is fast, high quality inflight internet that can be relied upon without drop-outs.”
While Inmarsat says its financing of the LSE study is in aid of the connectivity industry and describes the needs of the aviation industry as a whole, the company is a big player among those building the inflight connectivity infrastructure which would support this demand in future.
Inmarsat has established a High-Throughput Satellite (HTS) network consisting of 12 satellites in geosynchronous orbit covering flight routes around the world and over oceans.
The company offers a host of in-flight connectivity solutions for commercial and business aircraft. Inmarsat is also developing the European Aviation Network, through a partnership with Deutsche Telekom, which will combine satellite coverage with a 4G LTE ground network.
During the APEX EXPO, Inmarsat announced a contract with the AirAsia Group to equip 120 Airbus Aircraft. AirAsia Group CEO Tony Fernandes says:
“GX Aviation will form the backbone of AirAsia’s digital cabin offering.
"By delivering inflight connectivity that’s indistinguishable from what you get on-ground, our guests will be able to stay connected in ways that matter to them, whether it’s streaming movies or music, checking social media, messaging friends or catching up with work emails.
"Coupled with our ROKKI entertainment and ecommerce platform featuring free movies, music, articles and games as well as shopping, AirAsia guests will soon be able to enjoy one of the richest digital inflight experiences in Asia, while also enhancing our knowledge of our guests with very rich data.”