Panasonic’s Dave Bruner says he has grave concerns about the direction the inflight connectivity industry is heading. He thinks companies are selling their hardware and services too cheap, taking on big satellite capacity deals and risk running out of cash before they generate any revenue.
Speaking to ”Get Connected’s” Steve Nichols at the Aircraft Interiors Expo in Hamburg, Bruner, who is Panasonic Avionics’ Vice President of Global Communications Services, said the industry has reached a “hyper-competitive stage” and it won’t end well.
“Because the network side of this industry is a scale business, many of our competitors realised they needed to win some contracts to compete with us,” Bruner said.
“Over the last six months we have seen some incredibly low pricing for both the hardware and the service provision. In the past we’ve seen some subsidies, but now we now have companies completely funding and financing the hardware.
“It is a big change to the business and that would be OK if the service costs were rational, but they’re not,” Bruner said.
He said they are seeing Megabytes of inflight connectivity data being sold at rates that are way below the cost of airtime for the maritime market. He said his competitors are buying up masses of satellite capacity before getting any revenue coming in.
“It takes a while to get large fleets of aircraft connected and you bleed cash in the meantime until your revenues come online,” he said. “I think it’s going to generate extremely large losses for these companies.”
Bruner added that he thinks we are going to see companies going under or pulling out of the market
“How long it takes is the question mark,” he said. “But when it does there is going to be a dark period, both for the inflight connectivity industry and aviation in general.
“Because equipment is proprietary there will be large numbers of aircraft flying that can no longer offer satellite connectivity. It could take years for airlines to figure out how to get those aircraft connected again.
Bruner points to the example of “Connexion by Boeing” (CBB) when it said it would offer high-speed connectivity to commercial aviation in 2000 and named Lufthansa as its international launch customer the following year.
But in August 2006 Boeing canned the project, saying “the market for this service has not materialised as had been expected”.
So could we see another CBB? “Definitely!” says Bruner. “And when it happens how will it affect customers? Even if you were to acquire these inflight connectivity businesses it would take years to figure out how to integrate their systems and run their network.
“And you’re not getting the economies of scale from integrating two businesses, you’re just bleeding from two places at once.”
Bruner: “Be rational”
He called for his competitors to be rational – over pricing and what they promise.
“Every day there are wild claims about what their systems can achieve and they are not rational,” Bruner said. “They confuse the airlines and the investor community. This is not that complex a business, but we’ve made it very complex.
“It is hard for airlines to get accurate information and that leads to bad decision making. It wouldn’t take much for a large player to ‘go dark’ and the industry would then take two steps back.
“Every airline is soon going to be connected and that is fantastic. But it is also a scary time as you couldn’t easily convert someone else’s system onto your own network if a company failed.
“There would be a lot of passengers on a lot of aircraft being affected and that could stop the industry growing,” he said.
“If one big player were to go under it could affect the whole industry,” Bruner concluded.