Good news from in-flight connectivity provided Gogo in their Q3 ’13 financial report which came out on Monday: more passengers are buying in-flight internet service and, on average, they’re paying more for the privilege. The company hit a trifecta on the revenue side in their North America segment, as explained in their release:
The increase was primarily due to a 52% increase in [North America] service revenue driven by a 21% increase in the connectivity take rate as a result of growing demand for connectivity, a 15% increase in gross passenger opportunity, or GPO, as a result of a higher number of aircraft online, and an 8% increase in average revenue per session, or ARPS, as a result of product mix changes and price increases.
With more than 2000 planes carrying the company’s flagship Air-to-Ground (ATG) system in the North American market there are plenty of opportunities now for passengers to use the service. Nearly 79 million passengers took a flight with Gogo ATG at some point in the quarter. The increased take rate of 5.8% means that more than 4.5 million sessions were logged during the quarter or roughly 25 users per aircraft per day. That number is both tiny and huge given the averages and the flight profiles in play.
Compared to Q2 ’13 the take rate numbers are actually down a bit. I know that most investment comparisons like to do year-over-year for such evaluations and I get the reasoning for that. Still, I cannot help but be a bit intrigued that the take rate numbers this quarter were a bit worse. More leisure travelers on summer holidays, perhaps?
Overall the company still is not profitable, though they are making more money than they expected to so that’s a nod in the right direction for them. They actually upped their guidance for the full year based on higher than expected revenue for the quarter and lower costs. Some of that is related to pushing certain expenses into 2014 so it isn’t like the costs are not going to happen at all, but it does help the books this year.
Looking towards next year there are two major considerations in play. First is that there aren’t all that many more commercial airplanes flying in the USA which don’t have wifi installed and which also don’t have plans for such a system. That is going to limit the growth potential on the ATG install numbers which means the continued revenue growth will depend on higher take rates, higher revenue per session or some combination of the two. During Q3 ’13 the company added only 29 equipped planes; the prior year saw 55 aircraft fitted with an ATG kit. On the plus side, the ARPS number – how much the paying customers actually shelled out during the session – was up over Q2 ’13 as well. That’s a nice trend to see if you’re running the company.
The second big change is that the satellite connectivity will be online in the commercial space, both for North American carriers and also for the international markets, starting in 2014. JAL is going to be first with service on domestic flights in Japan starting next summer. And Gogo expects to have international service on Delta planes in 2014 as well. It is worth remembering the penalty clause Gogo has looming should a competing airline (believed to be United) outpaces a Gogo partner (believed to be Delta) in install rates through 2014. Getting in to the international markets does mean increased opportunities for installs and, eventually, consumer revenue. But, at least for now, the company is treating those markets as if they are in “start-up” mode which mostly means expectations of higher costs and minimal revenue.
Wall Street is keen on the Q3 results, seeing nearly all positives. I’m a bit more reserved, with some concerns about what’s on the horizon in 2014. I suppose we’ll see who is right soon enough.
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