While I was on vacation a couple weeks ago it seems that Gogo reported their 2nd quarter numbers and actually managed to beat analyst estimates. That is certainly a good thing, though they are still not actually profitable. Reading over the Gogo Q2 2013 10-Q filing this week I came across a few interesting (at least to me) nuggets of information about the operations and some of the numbers behind the service.
Most interesting to me is the report of how many planes have the service installed, how much revenue they are generating and what the take rate per flight is. Fortunately, they have a chart showing all those bits in one easy-to-read table:
The math is actually pretty straight-forward. Take the total number of planes with the kit and then multiply by the number of seats per plane, the number of flights per day and the average historical load factor by airline. That gives the total number of opportunities Gogo has to sell a session to a customer. There are a whole lot of passengers flying on segments where gogo is available, to the tune of more than 77 million in Q2 2013. The DoT data for that same period isn’t fully available yet but it appears that the 77mm passengers represents roughly half of the passengers flying in the domestic markets (~160mm from what I can interpolate). That’s a pretty decent market penetration number for Gogo. Also impressive is the 26% increase in the number of planes equipped and the 11% increase on the take rate YoY. And let us not ignore the 15% increase in average revenue per session; apparently people are still buying even with the rate hikes in recent months.
The text notes further expose some of the company’s operational details and financial arrangements with customers. A couple of the sections were particularly interesting to me. For example, the AirFone unit which Gogo purchased earlier this year from JetBlue subsidiary LiveTV was apparently over-charging customers and under-paying taxes, to the tune of $3mm. Ouch.
In connection with our ongoing integration of Airfone, we have determined that Airfone over-billed its customers for and may have under-remitted FCC-mandated Federal Universal Service Fund (“FUSF”) fees to Universal Services Administrative Company (“USAC”). As a result, Airfone may need to remit additional amounts to USAC and, due to the difference between amounts collected and remitted, may owe refunds to its customers. Although we are continuing to review Airfone’s records, based on facts currently known by us, we believe that the aggregate amount of any under-remittances to USAC and liability to Airfone customers for the period beginning January 1, 2009 and ending March 31, 2013 is approximately $3.0 million.
There are a couple of specific contract provisions with airline partners which also allow for performance-based rebates or penalties with some interesting metrics. For example, one airline wants more Gogo-equipped planes than a competitor (I’m guessing that the two parties are Delta and United Airlines, but I don’t actually know for certain.):
One contract covering the international fleet of one of our airline partners requires us to provide a credit or refund of up to $25 million to our airline partner if a competing airline installs satellite connectivity systems on a certain number of aircraft in its international fleet more quickly than we install our system on our airline partner’s international fleet. The refund or credit would be eliminated in its entirety if we complete full installation of our airline partner’s international fleet by January 1, 2015, which date may be extended by up to six months as a result of certain excusable delays.
The other payment call-out is based on having enough planes equipped with the service:
One contract with one of our airline partners requires us to provide our airline partner with an annual cash rebate of $1.8 million and a reduction in certain charges beginning in June 2014 if our service is available on a specified number of aircraft in our airline partner’s fleet by such date. Provided that the number of aircraft on which our service is available remains above the specified threshold, the cash payments will be due each June thereafter through 2023.
That’s a sizable payout for getting the kit installed on a bunch of planes and keeping it there. Then again, with an average revenue number of about $100k per plane, getting a bunch more installed is probably worth some sort of a discount.
After all that, it turns out that I have a stack of promo cards from gogo sitting around. I don’t actually know when I got them but they are valid through 31 December 2013 so I figure I should start giving them away lest they go unused. Anyone want one? I’ll give away one per day for Wednesday, Thursday and Friday of this week (21-23 August 2013) based on entries received via Twitter (trying to mix things up a bit). Follow me on Twitter and send a tweet: “I’d use free gogo on ____ @WanderngAramean” filling in the blank there with a route, airline or other random word as you see fit. Entries close at midnight EDT each night and I’ll send a DM to the winner the following morning with the code. This is not at all sponsored by, endorsed by or associated in any way with gogo, other than that the passes I have are for their service.
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