In-flight WiFi finances: WirelessG explains

MyBroadband recently reported that WirelessG’s in-flight WiFi, which cost around R30 million to get going, was not generating any returns. However, WirelessG CEO Carel van der Merwe explained that the business model is workable, and has been tested.

Vodacom documents revealed that they invested R30 million in WirelessG’s in-flight WiFi service, but that the service is not generating positive returns.

According to Vodacom the service only generated total revenues of between R27,191 (September 2012) and R18,255 (October 2012) per month from July 2012 to the last reporting period.

The documentation shows that the service made a loss of R294,669 over the last eight months of operations. This loss does not include any repayments for the initial capital investment.

Van der Merwe explained that the business case was based on a 10 year plan, and that the feasibility of service was tested against a beta phase.

The WirelessG CEO said that the following critical success factors are required for a successful in-flight Wi-Fi business model over a 10 year period.

1. Like any business model with a high fixed cost component, a satellite transponder configuration needs a critical minimum amount of planes to be connected. This figure can be as high as between 25 -30 connected planes in order to maximize profitability. It is self-explanatory that a project with only six planes must either be part of a strategic plan or covers a broader scope than six planes.
2. All elements of a business plan have to be executed in order to measure success. The in-flight Wi-Fi project can only be benchmarked against its own business case and execution thereof, however, each partner also had its own strategic objective which is a function of how they make use of the opportunity in terms of driving differentiation and bundling the product. In this regard, Mango and WirelessG cooperated very successfully and demonstrated their creativeness and innovative power.

“WirelessG’s invitation to assist all our partners (including Vodacom) in all their efforts to explore all the opportunities provided by in-flight Wi-Fi remains open,” said van der Merwe.

Valuable exclusivity agreement

One industry player close to the companies, who asked not to be named, said that the in-flight business model can work. However, longer flights may be needed for this.

He explained that Short South African flights mean that travellers do not get a lot of time to spend online.

He added that bundled products with in-flight WiFi is needed to generate additional revenue from the service.

The biggest value to both Vodacom and WirelessG, he said, is WirelessG’s exclusive agreement with Row44 to offer in-flight services in Africa.

This agreement gives WirelessG a strong position to offer in-flight WiFi through other African airlines and on longer flights in future.

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