The current coronavirus pandemic is sparing no business or industry. As airlines around the world struggle with unprecedented dampening of travel demand, suppliers and others connected to the industry are feeling the impacts too. One such company is Gogo, a leading provider of inflight WiFi solutions, who is reported to be working to rein in costs amid the current global crisis.
Significant drop in demand
Gogo had a great 2019, with strong sales and impressive levels of customer satisfaction. However, in a trend that runs parallel to the experiences of the aviation industry in general, the company has noted a significant drop in demand since the beginning of March this year.
Runway Girl Network (RGN) reports that traffic on some of Gogo’s biggest commercial airline customers was depleted by some 15%, even before US President Trump instigated a travel ban between the EU Schengen zone and the US. Now, with many of its major airline customers slashing flights and grounding fleets, Gogo faces some strong headwinds if it is to maintain its position in the global connectivity space.
Among Gogo’s most significant airline customers are Delta Air Lines, British Airways, Japan Airlines and Virgin Atlantic. Every one of these airlines has announced massive capacity cuts in recent days, as well as other measures to drive down overheads such as staff being forced to take unpaid leave.
CEO Oakleigh Thorne told Advanced Television,
“Roughly 73 per cent of our in-air revenue from flights originating in North America, 19 per cent originating in Asia, 5 per cent in Europe, and 3 per cent elsewhere. In January and February, we were on track for a great start to the year at both our Business Aviation division and our Commercial Aviation division. And two weeks ago, we started to see a significant decline in Asia for our CA division, as US airlines cancelled flights to the region, and domestic travel in Japan declined significantly.”
Adjusting capacity contracts
The reduction in passenger flights, and therefore in sales revenue for Gogo, means the company is looking at creative ways to reduce its ongoing overheads. One way in which it aims to do this is by seeking adjustments to its bandwidth rental contracts with satellite operators.
Gogo currently rents capacity from SES, Eutelsat, Intelsat and others. In fact, it has capacity rental agreements across 34 satellites in all, contracts which are estimated to be worth $846m, with $141m expected to be paid this year.
Canceling or adjusting these contracts will be painful for the satellite operators, but Thorne is confident the companies will allow Gogo the flexibility it needs. He commented,
“We are very valuable customer to the satellite companies. We are the largest customer for a few of them. We are the fastest-growing customer prior to coronavirus. And we will be the largest customer and the fastest-growing after coronavirus passes. So there is a lot of benefit for them to work with us to help us get through this pandemic.”
The move by Gogo to pull away from some of its capacity contracts temporarily could be a telling move for the IFEC industry in general. Other providers such as Global Eagle, Panasonic Avionics, Thales and more could well follow in Gogo’s footsteps in a bid to keep their companies afloat during these uncertain times.
How the satellite operators respond remains to be seen.
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