On Air: Connectivity – the end of "Airplane Mode"?
The internet takes to the air
The advent of external and internal connectivity has stimulated change in in-flight entertainment
services. On-board internet access is now possible via Wi-Fi signals in the passenger cabin and
external connectivity provided by either satellite communications or air-to-ground systems. The
continuing drop in satcom prices, helped by a new generation of satellites, supports this cycle.
Connectivity may not be the hoped-for bonanza…
Cash-rich airlines see connectivity as a possible differentiator and may be tempted to look for a
customized service proposition. However, they are struggling to define a viable business model, as
passengers seem unwilling to pay for a service that is at risk of becoming a commodity (as in
hotels). The connectivity equipment ramp-up will continue, but the boom is not yet in sight.
…until it wins an audience
The future of the in-flight entertainment connectivity (IFEC) market depends on making the service
attractive and affordable. Volume leverage is still absent but may develop by making the service
cheaper and more reliable and adding new capabilities to prompt passenger purchases. This may
drive a double-digit CAGR in IFEC revenues at most stakeholders for the next 10 years.
IFEC of strategic importance for many A&D / satellite players
We estimate that global IFEC may account for up to 50% or more of the MT sales growth of Thales
(when adding in revenue synergies in satellites, cybersecurity, etc.) and Eutelsat, our two preferred
stocks to play this theme. It is also of key importance for other players such as SES, Zodiac
Aerospace and Cobham, influencing their top lines as well as R&D and M&A strategies.