Feb. 7 (Bloomberg) -- Aircell LLC, the largest provider of Internet service on airplanes, raised $35 million to help bolster its network and sign up more customers ahead of a likely initial public offering.
The funding, from current investors Ripplewood Holdings LLC and entities related to Oakleigh Thorne, brings Aircell’s total capital raised to almost $600 million, Chief Executive Officer Michael Small said in an interview.
With Wi-Fi installations in almost 1,300 airplanes, Aircell controls about 80 percent of the in-flight broadband market, according to research firm In-Stat. Surging sales of smartphones and tablet computers such as Apple Inc.’s iPad are boosting demand and may help the market almost triple this year to $262 million, In-Stat predicts. In the next year, Aircell plans to introduce an e-commerce service and have a powerful enough network to handle video, Small said.
“We’re the Internet in the sky, and everything you do on the Internet on the ground people want to do on the plane,” said Small, 53, who joined Aircell as CEO last year after a 29-year career in the communications industry. “The biggest challenge is to meet the demands for the service.”
Aircell, based in the Chicago suburb of Itasca, Illinois, was founded 20 years ago to provide a way for passengers to make affordable calls from an airplane. The company gained the ability to provide Wi-Fi five years ago, when it spent $31.3 million in the U.S. Federal Communications Commission’s air-to-ground spectrum auction.
Aircell introduced the service in 2008, when AMR Corp.’s American Airlines became the first customer. Under the Gogo brand, the company’s in-flight Wi-Fi has signed on seven additional airlines. Delta Air Lines Inc. is the biggest customer, with more than 500 installations.
The $35 million investment should be the last round of funding before selling shares to the public, Small said. While there’s no time frame for an offering, the company is big enough and has enough growth potential to be a “legitimate IPO candidate,” he said.
Gogo’s service costs $4.95, $9.95 or $12.95, depending on the length of the flight, and monthly subscriptions can be purchased for $34.95. Delta said in November that it will add the service to 223 regional aircraft this year, meaning 80 percent of its domestic fleet will have Wi-Fi available.
Aircell’s success depends on its ability to get customers to pay for a service that they get for free elsewhere, said Amy Cravens, an analyst covering the Wi-Fi market at In-Stat in Scottsdale, Arizona. Starbucks Corp. and Panera Bread Co. are among cafe chains that offer free Wi-Fi, and many airports and hotels now provide complimentary Internet service.
“People are so used to getting free Wi-Fi in Starbucks and other places,” Cravens said. “Even though it’s a different proposition, it’s kind of hard to explain that to the passenger.”
While Aircell controls more than three-quarters of the market, it does face some competition from Row 44 Inc., based in Westlake Village, California, and Japan’s Panasonic Corp.
The biggest challenge, according to Small, is creating a powerful enough network to handle a deluge of demand during peak travel periods. During the holiday season, Google Inc. sponsored a promotion for free Wi-Fi on Delta, AirTran Holdings Inc. and Virgin America Inc. flights. The promotion attracted more than 2 million users, Small said.
“It stressed our network every which way and we had to do a lot to manage the traffic,” Small said. “That the consumers want it is a nonissue, and that we have high-quality service is a nonissue. We just have to make sure that we meet the capacity needs.”
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