American Airlines Just Ended the Era of Awful Gogo Wi-Fi

A public skirmish with the airline exposed a huge problem with Gogo’s older business model.

Operations At The American Airlines Group Inc. Terminal Ahead Of Earnings Figures
Photographer: Mark Elias/Bloomberg

The public spat between American Airlines Group Inc. and Gogo Inc., which provides the bulk of the carrier's domestic inflight Wi-Fi, could be considered the final blow to ground-based Internet access that has become another irritating part of the air-travel experience.

It will take years for Gogo to install its backlog of orders for faster Internet service, but at least the beginning of the end of a sluggish era of in-flight Wi-Fi is finally near. The fight started when American petitioned a Texas district court on Feb. 12 to enforce a contract term allowing it to ditch Gogo for a faster service from rival ViaSat Inc. Ten days later—once Gogo shares had tanked by more than a third—American withdrew its request for a declaratory judgment after Gogo agreed with American’s interpretation of that contract provision. Gogo will submit a proposal to improve the service on the roughly 200 American planes.

Gogo has touted its new satellite-based broadband service, called 2Ku, as the next-generation platform to compete against a slew of aggressive rivals, including ViaSat, Panasonic, and Global Eagle Entertainment, and has won more than 800 orders. The 2Ku service is what Gogo will offer American in its proposal to upgrade the jets, mostly older Boeing 737s that fly across the U.S.

Gogo's chief executive officer, Michael Small, said his company will send a proposal for a better service by March 20. “We will fight for every plane,” he said Thursday on an earnings call with analysts.

An American spokesman, Casey Norton, said the company has not decided which service to adopt on the planes covered by Gogo’s contract. “If Gogo chooses to submit a proposal in response to the competitive offering, we will evaluate it,” he said in an e-mail. The contract would allow American to defect to ViaSat after it reviews Gogo’s offer.

Gogo says the dual-band Ku service is capable of delivering top speeds of 70 megabits per second, compared with the 9.8 Mbps of its former speed leader, a ground-based technology called ATG4. Over time, as satellite-beaming techniques are perfected, Gogo believes speeds of 100 Mbps will be possible.

The trouble for Chicago-based Gogo is that it can't get the new, faster service off the ground quickly enough. Only 75 planes are scheduled to be equipped this year, followed by 300 in 2017, due to bottlenecks in certification of aircraft modifications by the Federal Aviation Administration. In the meantime, most people on Gogo-equipped airplanes will be flying for some time with the pokier ground-based cell tower service passengers have come to know and loathe. The company’s shares have declined 45 percent this year.

Another problem for Gogo is that the industry it pioneered has rapidly changed. When Wi-Fi was a new inflight amenity, financially fraught airlines were leery of assuming any costly risks. Gogo took on much of the upfront financial burden at first, collected the revenue from Wi-Fi users, and shared a portion of that with the carriers.

Today, as more passengers demand an Internet experience aloft akin to those on the ground, Gogo finds itself trying to catch up rapidly. It must employ price-to-throttle usage on its ground-based network, which doesn’t have the capacity to allow everyone on an average flight to connect. It also has been hurt by the slow pace of federal auctions for new wireless spectrum, which could help reduce capacity bottlenecks for Gogo’s ground-based services.

Now that airlines no longer question whether they should offer Wi-Fi—it has become mandatory—airlines are demanding greater control over the experience and over the revenue. JetBlue Airways, for example, gives passengers ViaSat’s broadband Wi-Fi for free through a marketing relationship with Amazon.com. Virgin America recently adopted ViaSat for some new planes—an incursion into a fleet that had been a Gogo exclusive. United also has ViaSat’s service on much of its Boeing 737 and 757-300 fleets.

Gogo's Small said Thursday that the pace of 2Ku installations will progress, and costs will drop, once it receives certifications from the FAA for more aircraft models. Gogo received the first FAA certificate for a commercial 2Ku customer, Aeroméxico, in November. Virgin Atlantic Airways and Delta Air Lines are among the next group of carriers scheduled to fly with the new service this year. Delta is the largest U.S. customer for 2Ku, with more than 250 planes scheduled for upgrades.

While Gogo argues that its “open architecture” service allows airplanes far less costly downtime than rivals over the life of an aircraft, expense isn't the primary issue these days for cash-flush carriers. Mainly, they just want a Wi-Fi service that customers don't whine about.

— With Michaela Ross and Mary Schlangenstein

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