1、1Chapter One:Quantifying the commercial opportunities of passenger connectivity for the global airline industryIn association withDr Alexander GrousDepartment of Media and CommunicationsLondon School of Economics and Political ScienceSKY HIGH ECONOMICSSKY HIGH ECONOMICS12ContentsForeword,by Frederik
2、 van Essen 2Executive summary 3Broadband in the Sky by Robin Mansell 5Dr Alexander Grous Biography 7Sky High Economics:Chapter One 8Overview 9Market drivers 10Research approach 14Airline passenger growth 17Ancillary revenue forecast summary 17Average revenue contribution 23Broadband-enabled ancillar
3、y revenue 26Regional segmentation 27Full service carriers and low cost carriers 30Regional broadband-enabled revenue categories 36 Advertising 37Advertising:Page impressions and pay per click 37Advertising:Ad-supporting free broadband connectivity 40Broadband access revenue 43Premium content 46E-com
4、merce and destination shopping 49Conclusion 52Bibliography 53References 54Disclaimer 56 Frederik van EssenForewordWelcome to the first instalment of the Sky High Economics study.Thisstudy,conducted by the London School of Economics and Political Science,is the first of its kind to comprehensively mo
5、del the socio-economic impact of the connectivity revolution on the aviation industry.This will include a later report looking at thepotential benefits that connectivity will bring to Operations&Safety and the impact of passenger connectivity on Loyalty&Behaviour within the aviation industry.This fi
6、rst report looks at the Revenue and Economics of inflight passenger connectivity.The findings point to a future in which airlines will require a high quality,global solution to capitalise on the potential revenue opportunities that exist within the market;the seismic shift to an always connected cul
7、ture means passenger Wi-Fi is now a necessity rather than a luxury.With this connected network of passengers comes a sizeable revenue opportunity with the power to entirely re-shape the aviation industry.I am proud to say that Inmarsat Aviation is uniquely positioned as a partner tohelp meet the gro
8、wing demands for high quality aviation connectivity,with its wholly owned and operated global satellite networks.The skies represent the final frontier in the race to connect travellers to high quality broadband connectivity,and this research clearly demonstrates the magnitude of the opportunity at
9、stake.Bring It On!Senior Vice President Aviation Strategy and Communication,Inmarsat AviationSKY HIGH ECONOMICSSKY HIGH ECONOMICS34Executive Summary The global airline industry is on the cusp of a connectivity revolution.Currently 3.8 billion passengers fly annually,with only around 25%of planes in
10、the air offering them some form of onboard broadband.This is often of variable quality,with patchy coverage,slow speeds and low data limits.By 2035,it is likely that inflight connectivity will be ubiquitous across the world.Non-broadband-enabled traditional sources such as seat upgrades,onboard duty
11、 free and baggage fees are currently worth around$60 billion to airlines.For the first time,this research study bridges the gap between current market estimates of traditional revenues and the forecasting of incremental revenue from broadband-enabled cabins.Using IATA passenger traffic data and fore
12、casts of growth,including a near doubling of passenger numbers to 7.2 billion annually,this research study forecasts that broadband-enabled ancillary revenue will reach an estimated$30 billion for airlines by 2035.Overall,a total market of$130 billion of additional revenues will be created.As well a
13、s airlines,this market will include content providers,retail goods suppliers,hotel and car suppliers,airlines and advertisers.The four primary areas of broadband enabled ancillary revenue have been defined in the research are:Broadband access Advertising,encompassing interruptive advertising and pay
14、-per-click E-commerce and destination shopping Streaming,including premium contentThe research looks at six key regions:Asia Pacific,Europe,North America,Africa,Middle East and Latin America,analysed using both primary and secondary research,drawing on available data of passenger numbers and of fore
15、casted aircraft growth globally.By 2035,broadband-access revenue is forecast to remain the highest single source of new ancillary revenues,accounting for 53%of the total market,followed by e-commerce and destination shopping at 40%of the market,with advertising revenue accounting for 8%of the market
16、,and premium content at around 2.5%of the market.Per passenger,this means an increase of 1,129%in broadband enabled ancillary revenue from the current$0.23 per passenger in 2018,to$2.82 in 2028,reaching$4 per passenger by 2035.With current traditional ancillary revenue for airlines of around$17 per
17、passenger,the research study projects that broadband connectivity will add around 24%to ancillary revenues for airlines in real terms by 2035.Growth in broadband-enabled ancillary revenue will be driven by the introduction of new generation satellites.These address the key requirements sought by pas
18、sengers that have been lacking to date in many cases,most importantly high bandwidth and continuous connectivity.Passenger surveys continue to confirm that these are integral components of quality,which remains the primary driver of broadband take-up,and that passengers are willing to pay more for h
19、igh quality onboard connectivity.When combined with a well-developed ecosystem of content,products and services,this can spur the development of related ancillary revenues from both leisure and business passengers on Low Cost Carriers and Full Service Carriers.Globally,Low Cost Carriers(LCCs)are for
20、ecast to account for around$11 billion of revenues,and Full Service Carriers(FSC)around$19 billion.The capitalisation of opportunities presented by a connected cabin with high quality continuous coverage will depend on the degree that airlines are willing toengage with third party suppliers,retailer
21、s,destination companies,content providers and others.The research study forecasts that by 2035,from the estimated$30 billion airline share of the total broadband-enabled revenue of$130 billion,Asia Pacific has the highest figure at$10.3 billion,followed by Europe with$8.2billion,North America with$7
22、.6 billion,Latin America with$1.9 billion,Middle East at$1.3 billion and Africa with$0.58 billion.The opportunity for revenue growth from broadband enabled services is dependent on airlines commercialising passenger data to a much greater degree than occurs currently.Today,only 11%of existing airlin
23、e schemes offer personalised rewards based on purchase history or location data.More loyal customers can generate a 23%premium in profitability and revenue to airlines.Airlines today have failed to fully develop the potential opportunities offered by passenger data.Airlines are in the drivers seat f
24、or realising a massive opportunity.By bringing together right technological,retail,advertising and content partners,airlines will be able to offer passengers the services they are asking for,whilst improving the bottom line.With the number of passengers currently flying every day forecast to almost
25、double by 2035 this is a sky high multibillion dollar opportunity for the global airline industry.SKY HIGH ECONOMICSSKY HIGH ECONOMICS56Broadband in the Sky by Robin Mansell Networked information technologies and solutions are an integral part of everyday life in the 21st Century,producing a major d
26、emand for connectivity.This demand is extending the desire for connectivity:to be always and everywhere connected.Amplifying this demand is the increase in the mobility of people,with total domestic and international passenger air travel journeys exceeding 3.8 billion.1 The demand for connectivity i
27、s the driver for massive investment in mobility,with$880 billion invested in telecommunication infrastructure worldwide over the past five years,and global smartphone sales of$1.8 trillion over the same period.2 Access to the internet increasingly is with smartphones and tablets for personal use,and
28、 the trend toward mobile or ubiquitous computing and communication is also mobilising the workplace and blurring the boundaries between workspace and living space professional and social.Mobility is an extension of the communicative capacity of individuals and is now a familiar feature of everyday l
29、ife.Mobility and the proliferation of Cloud services provide the ability for individuals to consume media,work and communicate on the move or at a distance.Maintaining the connectivity that makes this possible is becoming an expectation but progress in providing this is uneven.Different rates and co
30、nsistency of data transmission are experienced in all mobile telecommunication networks leading to user concerns about quality,and major gaps in connectivity remain.These gaps are particularly apparent in the transit between urban areas,with long distance travel typically involving prolonged outages
31、 or degradations in connectivity.At the same time,users are likely to expect connectivity to be present in an ever greater number of locations,both free and via subscription.These developments make any in transit outages experienced by passengers during long distance travel more conspicuous.An indiv
32、idual may choose to defer connection during travel.However,since modern working and social lives involve a high level of communication,immediacy,and a sense of urgency to work or engage in communication or entertainment,the trends towards higher levels of mobile connectivity may indicate a willingne
33、ss to pay additional charges for connectivity.The availability and reliability of connectivity influences the degree of engagement people have with their online personal and work domains,and the extent to which these are utilised.Inflight wireless broadband provides the opportunity for individuals t
34、o continue their engagement with these domains inflight.A high-reliability service that provides an end to the inflight blackouts that are often experienced,and maintains Professor of New Media and the Internet,London School of Economics and Political Scienceconnectivity when individuals are airborn
35、e,will enable those who value this continuity to pay for inflight services.Those for whom this is a requirement,including many business and corporate flyers,are likely to welcome the ability to remain productive inflight while also enjoying the social and recreational opportunities available to them
36、 through online connection.There are others who may prefer a free-access model,including some younger travellers whose experience is mainly with free access to Wi-Fi or others who are unwilling to pay for faster connectivity,greater data provision,premium services,and other features.However,the shar
37、e of the air travelling population with a willingness to pay for inflight broadband is likely to increase due to the defining nature of connectivity in peoples lives,the value of online connectivity for conducting work,and the role that connectivity plays in maintaining and extending social and prof
38、essional networks.For all of these applications the terrestrial services available at a journeys end,with inclusive tariffs at high speeds,for many provide a benchmark for cost and quality.As a result,the quality of an inflight broadband service must be high in practice,indistinguishable from the se
39、rvice likely to be received in a modern business traveller hotel.The value of connectivity may be translated into business models in several different ways.A comparison is wireless broadband connectivity in business hotel accommodation.Although initially a differentiator that created competitive adv
40、antage for hotels offering such services,a wireless broadband service has become a common expectation and a cost of doing business,not only for business traveller hotels,but for almost all accommodation,although,in some cases,there are limitations on the free-time provided,data download speeds and o
41、ther restrictions.The provision of inflight wireless broadband is an added cost for the airline,and the extent of deployment will influence whether this service is a differentiator,a common facility(treated as a cost of providing air travel services that is incorporated in airfares),or an opportunit
42、y to generate additional revenue for the airline as new digital channels emerge enabled by broadband in the cabin.A comparison with the development of mobile telecommunication services and the earlier history of internet service provision suggests several options for airlines in the provision of bro
43、adband for passengers.The simplest for the user seeking persistent online connectivity is a limited offering of inflight online service based on a portal or walled garden used to generate revenue through pay-per-view services and advertising content.A second is for airlines to provide connectivity b
44、ut to limit access to higher bandwidths which can be used for services such as video streaming.Limitations can be imposed by charging premium prices or by using technical barriers like those imposed by mobile telephone operators which charge by the amount of data accessed and do not assure the user
45、that higher bandwidth services will work.The third strategy is to strive for comparable levels of connectivity to terrestrial wireless broadband connections and to charge a flat rate for such access or to provide it for free.The viability of the free option will depend on whether airlines find suffi
46、cient revenue offsets in providing advertising,online shopping,paid inflight entertainment and user data collection for internal use or resale or other areas of revenue to pay for the costs of the service.Many users will welcome the extension of online connectivity to air travel,one of the few space
47、s in which connectivity options are currently limited.The mobile internet market is maturing rapidly with users becoming intensely reliant upon and engaged with their network-enabled devices.Gaps and reliability problems still limit the user experience of online mobility with quality(consistency)rap
48、idly becoming an expectation among passengers.Opportunities for airlines are opening up as a result of the additional services that a broadband-enabled cabin can create.At the simplest level,a tiered paid-for and free service can be offered.More complex services and offerings can be added to these.T
49、he provision of inflight services offering comparable quality and consistency to terrestrial coverage will be influenced by the tension between user expectations for free broadband access or a charged-for service and the strength of user demand by those who are unable or unwilling to defer or interr
50、upt their connectivity during aircraft travel.The consistent attribute among these groups is that connectivity is becoming the norm,not the exception.SKY HIGH ECONOMICSSKY HIGH ECONOMICS78Dr Alexander Grous BiographyDr Alexander Grous has been engaged at the LSE since 2005,and works across the Depar
