The Profitable ECONOMICS OF INFLIGHT CONNECTIVITY
The ProfitableECONOMICS OFINFLIGHTCONNECTIVITYPeter Lemme - March 2019
C ONT EN TSForeword 3Author biography 4Executive summary 5A passenger’s airline journey 6State of inflight connectivity 7The Seamless Air Alliance 82Financial model12Four areas seamless will impact13IFC take rate14Cost per session15Recurring operational expenses16Capital equipment costs17Summary and upside analysis18Conclusion21
FOREWORDJACK MANDALAChief Executive OfficerSeamless Air AllianceSimplistic, seamless broadband connectivityFrom Day One the Seamless Air Alliancein the skies remains a barrier that technologyhas been determined to bring industries andis yet to overcome.technologies together to make connectivityPassengers want to stay connected withfriends and family, for business or pleasure,as easy and enjoyable in the skies as it is onthe ground.to surf the web, or just to stay up-to-dateIn a market that continues to struggle to showwith their social media.profit, the combined opportunities presentedConnectivity has become a new world lifestyle.in this landmark study represent a potentialincrease in market value from 11.4 to 36.7This study welcomes you to read aboutbillion and follows a significant and powerfulthe mission of the Seamless Air Alliancefirst year for the Seamless Air Alliance.and presents the positive impact that openstandards and industry collaboration canhave on the inflight connectivity market.3
AUTHOR BIOGRAPHYPETER W. LEMMEAccomplished president, chairman, founder.Peter Lemme has worked in the aviationincludes many voluntary roles. Peter is membertechnology industry for nearly four decades. Heand past chairman of the Ku/Ka-band Satcomis an accomplished president, chairman, founderSubcommittee at SAE-ITC/AEEC, and is alsoand blogger, and brings world-class leadershipmember of the Network Infrastructure andthat integrates multiple suppliers, serviceSecurity Subcommittee. He is an avid blogger onproviders and regulators.satcom.guru, which provides access to aviationPeter’s track record has produced notablefirst type-certification of automatic flightThrough successive projects, Peter has continuedcontrols, satellite communications, aeronauticalto assemble diverse teams that are able tooperational data communications, air-trafficovercome a myriad of technical, economic,control communications (voice and data), andstrategic, regulatory, and organisation challenges.airline passenger entertainment communications.Peter brings deep technical skills to manyPeter began his career at Boeing Commercialdisciplines, combined with a product-focus thatAirplane where he spent 16 years, and left asbalances the needs of the customer, the partners,Manager of Terminal Area Projects.and the company, maximises competitiveness,He has since worked for many companiesspecialising in aviation technology, includingTenzing Communications, Totaport, MobilePrime Time and AirCloud.His contribution to aviation technology also4communications technology and news.success, satisfaction, and economy, whilstengendering a goal-oriented, collegiate and funapproach to team-building.
EXECUTIVE SUMMARYThe state of inflight connectivity is set forThis paper begins with a review of the currenta major upgrade.challenges with inflight connectivity and thePassengers have long suffered with high prices,spotty performance, and difficulty to connect.Airlines have struggled with the high cost ofequipping planes, poor performance, and lowerpassenger experience. Next, the technologybehind and Seamless initiatives are described.Finally, the paper concludes with an independentstudy of the financial impact of these initiatives.net promoter scores. Current inflight connectivitycan be a brand-damaging event.However, the tides are turning. The next wave ofperformance enhancements from better antennas,modems, and satellite systems is just around thecorner. Multi-Tbps capacity is coming online fromnew and existing connectivity providers.The wireless market has enjoyed the advantagesThe four areas of impact that havebeen studied include:kk Take Rateskk Cost per Sessionkk Recurring Operating Expenseskk Capital Costsof standardization through the efforts of 3GPP,GSMA, Wireless Broadband Alliance, Wi-FiAlliance, and IEEE. Standardization enablesThe research shows that even a small step towardinteroperability, reduces cost, and simplifiesthese objectives could create 11.4 billion ofroaming between networks.value across the industry, with an upside to 36.7The Seamless Air Alliance is a non-profit,standards-based organization that aims to alignthe inflight industry and usher in a new era ofinnovation, to make inflight connectivity fast,billion. Inflight connectivity investments achievepositive cash flow sooner, swinging NPV fromnegative to positive, and compounding benefitsfrom other revenue sources.reliable, and easy-to-access.5
A PASSENGER’SAIRLINE JOURNEYThe search for connectivity never ceases.The digital onslaught surrounding work andplay impacts each of our lives. Passengers aresophisticated tools and convincing banners,and this can even happen onboard.constantly on the move, leaving behind the homeToday, telecommunication companies areor the office to travel to remote destinations.increasingly using converged networks to deliverInformation chases everyone even whilsttravelling, whether it be through messages fromassociates, friends or loved ones, or travel detailsregarding connections and destinations. Yet, thereis only a narrow opportunity to respond: whentime, space, power, and connectivity align.the best customer experience. 5G and the latestevolution of Wi-Fi offer great potential in theongoing efforts toward one smart convergednetwork. Every cell phone has a profile thatfigures it all out for the user. The development of802.1x and Passpoint work in a similar manner,permitting secure, reliable, automatic attachmentJourneys across the world involve discovery, andof cell phones to approved Wi-Fi networks usingthe responsibility is placed in the hands of theSIM- and certificate-based authentication.passenger: “How do I get there? What can I see?Where should I eat? What can I do? What should Ibuy?” Passengers start their journey online beforeboarding and continue it after disembarking,so there is a need to ensure that connectivity isconsistent alongside passenger needs.The Seamless Air Alliance is working to achieveconverged technology for the good of passengers,by driving more and more collaboration in a moreagile way throughout the industry. Passengerson commercial airlines should expect their cellphones to ‘just work’ like anywhere else. Step-Cell phones offer ubiquity, but sometimesby-step from departure to airport to airplane tostruggle at airports with so many people usingairport to destination, every device should be ablethe networks. Devices other than cell phonesto manage its connectivity in a Seamless manner.must rely on Wi-Fi for a connection. Today,people search for an “SSID” that looks safe,knowing that public Wi-Fi suffers severe securityshortcomings if not managed properly.6Malicious actors try to fool people with
STATE OF INFLIGHTCONNECTIVITYLESSONS OF THE PASTTHE CHALLENGES OF TODAYAirlines have been bringing connectivity toPassenger interest has shifted from voice to data,passengers for more than 80 years. Whilst notfrom talking to browsing. What do we know aboutgaining prominence until the 1980’s, seatbackthe current state of inflight connectivity?telephones were the pinnacle of technology inthe rush to connect passengers.The emergence of cell phones changed everything.1Passengers will use the internet if you giveit away for free.2Passengers need more and more internet tosatisfy their needs as time goes by.3Passengers are accustomed to gettinginternet for free at the airport and at thehotel. Otherwise, they rely on their cellphone for mobile access.4Some passengers will pay for the internetaccess, but the payment heightens theirfrustration with poor performance.5The current practice of high prices, spottycoverage, and poor performance, combinedwith quirky portals and credit card payments,has limited take rates to 10% or less.6Sponsorships have created a valueproposition that drives take rate. Forexample, T-Mobile allows their subscribersservice on Gogo equipped airplanes.7Airlines and service providers have hadlimited success with third-party revenue.Targeted advertising and significant salesremain a future endeavour. Most of therevenue comes from passenger service fees.8Airline capital costs to install equipment,coupled with ongoing service charges,ongoing maintenance charges that includesparing and repair, operation costs due toweight and drag, training costs, new featuredevelopment, and internal staffing all collectmore cost than passengers are willing to pay.By 1990, handheld cell phones were pervasive.Newfound mobility brought the opportunityto travel outside of the home region and keeptalking. Seatback telephony failed, demand nevermaterialized, costs were a factor. Cell phones filledthe void, even if they had to be in airplane mode.By 2000, instant messaging exploded into use.Email, SMS messaging, and internet access wereall offered to passengers. Costs kept prices high,from 7 per minute for 2400 bps to 100,000per month for about 30 Mbps in just one region.High prices kept passengers from purchasingconnectivity onboard, despite their ready interestand willingness to use it – and the first wave ofservice providers almost all failed.One provider survived: a clever use of anInmarsat-signalling channel, to act as a GSMcontrol channel tied to Inmarsat satellite voiceservice-led ARINC and Telenor to develop theAeroMobile GSM roaming PicoCell in 2004.AeroMobile developed roaming partner agreementswith MNO’s around the world, with the goal ofensuring cell phones on an airplane would connectno differently than roaming into any foreign country.AeroMobile and SITAONAIR remain in the markettoday, offering onboard cellular telephony.7
THE SEAMLESSAIR ALLIANCEThe ambition of the Alliance is to lay theIntegration of connectivity products includesgroundwork for industry players to imaginesuppliers of airplanes and airplane radios,and implement new services, solutions andWi-Fi, and IFE. Every airline is faced withbusiness models.integrating a unique combination of equipmentand suppliers with their own special operationsThe Alliance aims to create flexibletechnical and business frameworks,enabling multiple new use-cases:kk Providing open specificationsfor interoperabilityand requirements. Standard delineationsbetween parties allows for simpler integrationand more sophisticated features.TECHNOLOGYkk Integrating with cellular for africtionless experiencePowering the Seamless Air Alliance is akk Standardizing systems to simplifyselection and maintenanceGeneration Hotspot, Hotspot 2.0, Passpoint,kk Driving competition and innovationfor better performance and lower costNetwork Operators, satellite antennas,technical arsenal comprising 5G, Wi-Fi, Next802.1x EAP, 802.11u, cellular roaming, Mobilemodems and networks.5GOPEN STANDARDSIn aviation, changing anything costs a lot.Building every aircraft the same can lowerthe cost of manufacture, because standardprovisions allow airlines to install, swap, andSupporting the best user experience, 5Genables data rates as high as 10 Gbps, latencyless than 10 ms, massive capacity, andpowerful Quality of Service features.remove equipment by plug and bolt not wire5G does not fundamentally change the onboardharness, drill and rivet. Standard provisionscellular roaming environment - it continues toare especially a factor in retaining value on thesupport roaming in an analogous manner. 5Gairframe when it is sold to the next operator.promotes the use of EAP-AKA, a SIM-basedThe Alliance promotes open standards forintegrating new technology, interchangeability,lowering cost of installation, influencingmobile standards that benefit these objectives.85G is the latest evolution in cellular technology.authentication method to connect a cell phoneto Wi-Fi services. EAP-AKA capability is part of802.1x and 802.11u.
Network slicing is a 5G concept where eachDevices without a SIM card, such as somethread of communication related to a “singletablets and laptop computers, can also roambusiness purpose” is managed for quality oflike a cell phone. Instead of using SIM-basedservice. The granular control ensures the greatestauthentication, these devices must store asatisfaction from the available connectivityPasspoint profile and security certificate.for every user. Aeronautical broadband radiosA Passpoint device recognizes a compatiblefacilitate network slicing through adaptationWLAN and will logon automatically by usingand through controls being developed bybilateral authentication between WAP andSAE/ITC AEEC NIS subcommittee PP848.Wi-Fi device.Network virtualization, the use of “cloud-Passpoint is the brand for the certificationbased” or edge facilities rather than localprogram operated by Wi-Fi Alliance. Devicesappliances, enables much greater flexibilitythat pass this certification testing can beand responsiveness to changing or emergingreferred to as “Passpoint devices”. Passpointrequirements, especially with equipmentcertification is based on the Wi-Fi Allianceinstalled on mobile platforms.Hotspot 2.0 Specification.Whether through a SIM-based or Passpointbased attachment, once connected, the deviceKey components andcommunicates securely over the Wi-Fi channelfeatures include:without any user intervention.kk 5G NR (new radio)When a Hotspot 2.0 Passpoint device is withinkk Enhanced Mobile Broadband eMBBthe range of a Hotspot 2.0 wireless network,kk Ultra-Reliable Low LatencyCommunication (URLCC)the mobile device will automatically connectkk Extended Frequency Bands(450 MHz – 6 GHz) and(24 – 52 GHz)to the network and then be authenticated bya Passpoint server. Devices are loaded with aPasspoint security credential beforehand.kk Massive Machine TypeCommunications (MMTC)SATELLITE ANTENNASkk Wi-Fi aggregationAntennas designed for installation on airlinerskk Small-cell coveragekk Beamformingmust accommodate many requirements thatchallenge their performance and cost. Emergingphased-array antennas offer lower profile, multibeam support, and exceptional gain.Compliance to ARINC 791 and 792 provide aHOTSPOT 2.0 AND PASSPOINTCell phones may attach to a Wireless AccessPoint (WAP) using SIM-based authentication(EAP-AKA). Effectively, a WAP extends thecellular footprint through aggregation.simple means to swap out antennas as newversions become available. The integration ofthe modem and the new solid-state antennascreates opportunities to move modemfunctions to the antenna, simplifying theinterface as well.9
SATELLITE MODEMSROAMINGSatellite networks connect a modem on theThe Seamless Air Alliance promotes roamingairplane to a modem on the ground (the hubthrough interworking standards and bestor teleport). Each Communication Servicepractices. Passengers using cellular SIM-basedProvider (CSP) uses a specific modem thatauthentication translate value to their homeis matched to the ground network. ChangingMNO. Each MNO gains easy access to inflightrequirements may necessitate replacingservices their subscribers yearn for, throughthe modem, which resides inside the ARINCa familiar roaming agreement, and the same791/792 Modman.is true for Passpoint Wi-Fi subscribers andproviders. The Seamless Air Alliance missionis to accommodate as many device types aspossible. Authentication is customized for eachStandards are beingprepared to split theModman into two orthree LRUs, which allowsa modem to be in itsown LRU. This emergingstandard will permit morethan one modem to besupported, and any modemto be simply plugged in.service, where cellular devices use the SIM andother devices use Passpoint certificates.The relationships within the Seamless AirAlliance architecture are shown in Figure 1below. The Airline engages a CommunicationService Provider (CSP) to install an onboardLAN, a broadband radio, and radio network.The CSP may use a Wi-Fi access point, acellular base station or both. The CSP engagesa Roaming Partner Network (RPN) to facilitateroaming agreements and billing. The SeamlessSkyMNO is a combination of the CSP and theRoaming Partner Network.The cellular subscriber attaches onboardSATELLITE NETWORKSusing either a cellular base station or Wi-Geostationary Orbit (GSO) Ku/Ka-bandattaches to the onboard Wi-Fi network usingsatellite networks have provided high latency802.11u and 802.1x. The RPN represents thebroadband communications to airplanesairplane radio network as a visited location.up until now. Low Earth Orbit (LEO) and MidThe RPN communicates with either the HomeEarth Orbit (MEO) non-geostationary orbitMNO or Passpoint provider as directed. The(NGSO) satellite networks of hundreds andHome provider authorizes a session.even thousands of space vehicles are beingdeployed and will bring Tbps of low latencyin the coming years.At least two Ka-band providers and one Ku-bandprovider cover most of the earth from multipleGSO satellite positions. The GEO High ThroughputSatellites (HTS) include beamforming networksand switching to deliver bandwidth to every user.10Fi access point. The Passpoint subscriber
AirlineCellular municationService ProviderRoaming Partner NetworkHomeMNOCellular Voiceand ssFigure 1: Seamless Roaming ConnectivityExtending a roaming environment involvesShown in Figures 2 is the combined networkfeatures that span the onboard network, the radioarchitecture along with some of the enablingand the radio network. Standards are necessarytechnology and protocols. The Roaming Partnerto interoperate between the passenger’s device,Network aggregates roaming partners of everythe visited (local) Wi-Fi or Cellular network, andstyle to maximize the pool of subscribers.the MNO or Passpoint provider.AirplanePasspoint NetworkAAAPasspointDeviceHLRPEAL-TWi-Fi Access Point802.1x802.11uSEAP-TLSRouterEAP-AKA (SIM)AirGroundRadioNetworkInternetEvolved Packet Core(EPC)CellPhoneSIMANQPServerEvolved SSMMEServingGatewayPCRFPDN GatewayIMSFigure 2: Network ArchitectureAKAANQPDHCPEAPE-UTRANAuthentication and Key AgreementAccess Network Query ProtocolDynamic Host Configuration ProfileExtensible Authentication ProtocolEvolved UMTS Terrestrial RadioAccess NetworkHSSMMENATSIMTLSHome Subscriber ServerMobility Management EntityNetwork Address TranslationSubscriber Identity ModuleTransport Layer SecurityAAAePDGHLRHSSIMSPCRFPDNTWAGAuthentication, Authorization, and AccountingEvolved Packet Data GatewayHome Location RegisterHome Subscriber ServerIP Multimedia SystemPolicy Control and Charging Rules FunctionPacket Data NetworkTrusted Wireless Access Gateway11
FINANCIAL MODELAn independent study of the cash flow and Netbaseline per-session retail prices and costsPresent Value (NPV) of the inflight connectivityare assumed to decrease 5% year-over-year.market was created to examine the potentialA ten-year NPV is computed based on theconsequences of changes in the assumptionsresulting cashflow and using a discount rateas related to activities of the Seamless Airof 10%.Alliance. The purpose of the analysis is toscale the relative benefit from each area ofimprovement. The model analyzes the profitloss of the airline paying for the aircraftequipage, receiving revenue from passengersand paying for the service costs. The costs andprice points are expected to be representativeof the marketplace.is complex; this model does not profess topredict the future financial performance of theindustry. The model works from a baseline setof assumptions that are intended to best matchan “average” connectivity service, includingassumptions on take rate, costs, and pricing.The values projected from the baseline wit
the inflight industry and usher in a new era of innovation, to make inflight connectivity fast, reliable, and easy-to-access. This paper begins with a review of the current challenges with inflight connectivity and the passenger experience. Next, the
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