In-Flight Connectivity | Market Awaits Aviation Recovery Globally
Even after more than a year since the COVID-19 pandemic outbreak, the world is still fighting against the virus and its many variants. As a result, sanitary restrictions are still applied in several countries impacting the ability or easi
ness to travel by air, domestically and internationally. Hence, the international air traffic is struggling to recover its pre-COVID levels. On the other hand, the releases of lockdowns and other measures like ramped-up vaccinations taken at the country level have certainly helped partial recovery for at least the domestic air travel markets. In some countries like Russia and China, the domestic air traffic has already overpassed the pre-COVID levels. All in all, the recovery of the global aviation industry, and therefore of the In-Flight Connectivity market in general, is currently not expected before 2022 with disparities between domestic and international markets.
The historical drop in traffic has created a financial crisis for most airlines globally. According to the IATA, airlines have continuously experienced a negative EBIT margin greater than 35% on average since the first quarter of 2020. Following the differences in market dynamics as described previously, an improvement of the financial situation is likely to occur initially for airlines with little exposure to international travel. Therefore, in the short term, airlines might apply reverse thrusters on the investments related to the In-Flight Connectivity solutions.
Many airlines have either ceased their operations, scrapped their old aircraft, or sent their aircraft (mainly widebody) to long-term storage in order to face the crisis in a most efficient way. Despite the hindrance of the pandemic, the penetration of IFC solutions for commercial aircraft is estimated to have reached almost 34% at YE 2020 and could still reach around 50% by 2030. Owing to the long-term impacts of the COVID-19 crisis, it is anticipated that the total number of connected aircraft could grow from 4% to 5.5% CAGR over the next decade. In comparison, between 2014 and 2019, the market grew at 7.5% CAGR. It is currently estimated that the crisis impact on the In-Flight Connectivity market would be a loss of two years of growth.
By analyzing the situation for both commercial and business aviation, we can already see a clear disparity in the resilience to the travel restrictions. Indeed, business aviation was more resilient to the pandemic impact than commercial aviation mainly due to the nature of the flying experience provided by the segment. The deliveries of new business aircraft were affected by a negative 18% in 2020 as many countries imposed lockdowns in the second and third quarter of 2020. The segment traffic has already surpassed pre-COVID levels in many of the regions in the world by the end of the second quarter of 2021.
In terms of regional distribution, the largest market remains North America where In-Flight Connectivity is a mature market with few remaining aircraft being not yet connected or committed to an IFC solution. The North American airlines are increasingly switching either the existing services or the service providers in order to provide a “best-in-class” IFC experience to their customers. Other regions were catching up very fast in terms of IFC contracts signed but the pandemic has put a pause on the growth of the IFC market. The financial health of airlines remains at risk as they struggle to reach back profitability. As In-Flight Connectivity can represent a financial burden for airlines in the current scenario, the airlines are actively looking for alternative business models to encash the IFC. As a result, some airlines, in the short term, have put their IFC plans on the backburner and are desperately looking to generate cash.
The COVID-19 crisis has accelerated the reshaping of the service providers’ ecosystem that was being speculated by the industry for several years. The pandemic acted as a catalyst. The roles are being redistributed as some service providers are being restructured after a bankruptcy procedure and some others have sold parts of their activity. The IFC market is moving slowly towards being more vertically integrated as the line between satellite operators and service providers is getting thinner, creating acute competition. Euroconsult estimates that the service revenues, after experiencing the slump in 2020, are set to increase 5 folds in the next decade at ~18% CAGR over the decade.
On the other side, the satellite operators’ market is also expected to become more competitive with the massive increase of the capacity supply in the next five years and constantly progressing technologies, especially with upcoming NGSO constellations and flexible satellites. Hence, the average cost of satellite capacity is likely to decrease drastically. Ultimately, a better and affordable broadband experience is expected in the coming years. The impact of some technologies like the NGSO constellation is yet to be confirmed. However, the second half of 2020 and the first half of 2021 saw a few announcements and projects confirmations. Competition in this sector is expected to be harsh and a market consolidation could occur in the mid-term.
In conclusion, the In-Flight Connectivity market evolution heavily depends on the aviation industry. On the positive side, passengers are increasingly demanding access to the internet, even when they are 35,000 ft above in the sky. The travellers want IFC to be able to stay connected to the world and not to have any blackouts. Some passengers feel safe and can keep their anxiety at bay, especially flying in pandemic times. The efforts are being taken by each stakeholder of the IFC value chain to make most of the IFC technology and provide a comfortable and secure atmosphere to the passengers that can help build their confidence. Apparently, in this regard, the upcoming years will be crucial for every stakeholder in the In-Flight Connectivity value chain.