Former VP at SmartSky Networks LLC
- Operating environments for Gogo (NASDAQ: GOGO) and SmartSky – BA (Business Aviation) unit demand trends and emerging opportunities over the next 12-18 months
- Market share dynamics between Gogo and SmartSky over next 12-18 months and longer-term competitive risk and pricing implications from LEO (low Earth orbit) providers
- 5G ATG (air-to-ground) network build implications
- Outlook for 2022 and beyond – market consolidation, penetration headwinds, strategic optionality and potential wildcards
What’s your high-level overview of the TAM opportunity for in-flight connectivity? Gogo’s slide decks refer to 7,500 connected planes in 2020, a 16,000-plane base that isn’t penetrated and a prediction for penetration to reach 11,000 by 2025. How do you resonate with that?
How much excitement is there around emerging opportunities? The three commonly discussed are LEO [low Earth orbit] sats coming on – including a potential wholesale opportunity with the Starlink or Blue Origin – a general or recreational aviation market using personal or private jets, which is a 200,000 install base that could be wifi-driven, and third is general cockpit revenue opportunities outside of the passenger segment. What are you tracking?
It seems the Gogo CA [Commercial Aviation] sale to Intelsat is a bit of a response to the vertical-integrated model and there's even the Viasat and Inmarsat combination in November 2021, so plenty of scale and vertical consolidation is playing out. Given Viasat’s success displacing market share from Gogo’s CA business, would this be a time to start similarly assessing BA [Business Aviation], or might anything give Gogo a bit of a larger moat in BA vs CA?
How should we assess the coverage-speed balance and how that applies to the nascent efficiency of LEO sats for in-flight connectivity? I imagine the dropouts might even be more noticeable for the early days, especially because this generation of LEO sats are lacking intersatellite links to ensure sensors are catching on to the next sat as quickly as possible. Is LEO unlikely to be as involved in aviation and in-flight connectivity in the next 3-5 years, but it will gradually come as technology improvements throw out those dropouts?
Gogo management often alludes to the LEO inclusion to the market as more of a potential partner vs competitor opportunity, specific to BA. What are the puts and takes as it relates to Starlink or Blue Origin competing vs partnering Gogo BA?
In assessing the increasing competition, how sticky is Gogo’s approximate 7,000 BA install base between ATG [air-to-ground] and sats? Is that portion of the install base relatively sticky, meaning Viasat and others will largely be competing for the non-connected market portion?
Do you think of the 5G network build-out as a process to try and improve the dropout dynamic? How do you expect Gogo’s 5G initiatives to improve some of the coverage dynamics where it might come in short vs other satellite-based connectivity options?
How might the competitive landscape be impacted if SmartSky lights up an ATG network? It seems you’re putting the GEO [geostationary Earth orbit] and LEO above SmartSky, in considering the competitive threat to Gogo BA.
What are the pricing considerations given the 75% decrease over the last four years and further potential downside with so much capacity lighting up from the LEOs over time? What is the current state of per-bit pricing and how different is it for sat-based vs ATG? How could this trend over the next 3-5 years, based on how quickly fill rates increase?
Gogo’s ARPU is around USD 3,200 for ATG crafts, but what would an unlimited plan do to the monetisation potential? Is it somewhat deflationary?
What drives the delta for ATG and satcom, respectively about USD 40,000 and USD 60,000-80,000? Is it largely the customisation dynamic? Why can’t ATG get closer to monetising an aircraft at USD 60,000-80,000 per year?
You mentioned Bombardier, Gulfstream, Embraer and Cessna delivering approximately 500 aircraft per year vs Gogo targeting 1,100 units next year, which is 25% growth. How should we reconcile that? Is it an overestimate or is there upside potential to the delivery volume?
You suggested some of Gogo’s unit growth might be from replacing its Avance L3 to L5 systems. Are the installation costs comparable? Presumably, you must rip and replace an antenna system and install a new one, so there won’t be much savings south of the typical USD 200,000-450,000. Does the rip-and-replace component still include sizeable installation costs?
What is your consolidation outlook? You discussed players such as Starlink or Blue Origin potentially considering Gogo, but what broader-based M&A might play out, especially regarding the vertical integration strategy? We’ve had Intelsat acquiring Gogo CA, as well as the Inmarsat-Viasat combination. How might market consolidation evolve and how might it include Gogo BA?
Is there anything you’d like to highlight as closing remarks?
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