Shares of satellite Internet outfit ViaSat surged nearly 12 percent Tuesday on speculation that American Airlines might use the Carlsbad company to supply in-flight Wi-Fi on some of its commercial jets.
The news stemmed from a contract dispute between American and its current in-flight Wi-Fi provider – Chicago-based Gogo – that could open the door for the Dallas-based airline to switch to ViaSat for some domestic flights.
Gogo’s stock price tumbled 27 percent on the news.
The contract spat is nuanced, but it highlights the growing importance of high speed Wi-Fi to airline passengers. According to a recent survey by Honeywell, two-thirds of passengers said the availability of Wi-Fi was a factor when they selected a flight. A study by the Airline Passenger Experience Association found that better in-flight connectivity was the second most desired upgrade that passengers want – trailing only more comfortable seats.
A relative newcomer to the market, ViaSat powers satellite in-flight Wi-Fi for JetBlue, Virgin America and some United Continental aircraft, with about 450 commercial jets in the sky. It delivers more bandwidth – up to 12 megabits per second to each seat – than older inflight Wi-Fi technology. That allows passengers to stream Netflix or Amazon Prime shows to their computers or tablets while in the air.
Carlsbad's ViaSat delivers high-speed in-flight Wi-Fi to JetBlue's fleet in North America. It also supplies satellite Wi-Fi to Virgin American and some United Continental Holdings aircraft.
Gogo is the leading supplier of in-flight Wi-Fi, with more than 2,300 aircraft using its air-to-ground technology. Customers include Delta, United, Alaska Airlines, Air Canada and AeroMexico.
The air-to-ground system doesn’t deliver as much bandwidth as satellite systems. Gogo provides 3 megabits to 10 megabits per second to be shared between all passengers on the plane, which can lead to clunky Web surfing if too many devices hook up.
Gogo is rolling out a new satellite based service called 2Ku, which it says will match ViaSat’s performance. The system has been installed on one AeroMexico jet, with orders in the pipeline for 800 additional planes from various airlines, according to Gogo spokesman Steve Nolan.
Last week, American Airlines filed a legal action in a Texas state court saying under terms of its 2012 air-to-ground contract with Gogo, it had the right to terminate the deal before it expired "if an in-flight connectivity provider other than Gogo began offering a better service," according to court documents.
American named ViaSat as the company providing better Wi-Fi.
"We are always looking at what products we can provide our customers to meet their needs on-board our aircraft, and that includes connectivity," said Casey Norton, a spokesman for American Airlines. "We notified Gogo that a competitor has made an offering, and we will evaluate all of our options."
Gogo declined comment on the lawsuit. But it did say under the contract terms, it has the right to make a counter offer on the roughly 200 aircraft covered by the contract.
"We plan to submit a competing proposal to install our latest satellite technology — 2Ku — on this fleet,"Gogo said in a filing with securities regulators. "We believe that 2Ku is the best performing technology in the market and look forward to discussing our offer with American."
Gogo said it plans to utilize capacity on around 180 Ku-band satellites globally to deliver its 2Ku service.
ViaSat declined to comment on the dispute. But Keven Lippert, ViaSat’s head of satellite systems, said the company-owned satellites have the capacity to deliver exponentially more bandwidth than rival satellites.
For example, ViaSat-1, which was launched in 2011, has 150 gigabits per second maximum bandwidth. Today’s Ku-band Internet satellites have 1 to 3 gigabits maximum capacity, said Lippert.
ViaSat-2 is scheduled to launch next year. It will have close to 300 megabits per second maximum throughput.
"It boils down to math," said Lippert. "You can say you can provide 100 megabits per second, and you can do that for one aircraft. But when you have hundreds of aircraft and passengers video streaming, the capacity of your network becomes important. If you don’t have a lot of capacity, your service breaks down."
ViaSat’s shares ended trading up $7.36 to $69.81 on the Nasdaq exchange.
