In-flight Broadband

In the beginning, only business travelers are viewed as potential clients

Penetration for flat-rate Internet vs. price (i.e.: % of business passangers expected to use the service on any given flight.)

Information that can be shared: 

• The airline industry is interested in in-flight broadband.
• The startup charges customers per flight.
• The end-customers are the passengers, not the airlines.
• Each airplane flies 600 long-distance flights per year. 3000 commercial airplanes worldwide.

Additional Information

• We assume that the average client uses 100 MB per flight

The total revenue per customer is set at $15. This is independent of the amount of data each customer uses.

Information concerning the costs that should be shared on demand:

• The startup must pay satellite operators an annual satellite fee.
• In addition, the startup must pay the operator for every megabyte downloaded in-flight.
• The airline charges a yearly licensing fee.
• The investment costs include amortized acquisition and installation costs.

The interviewee can brainstorm cost segments.

Possible answers:

• Competitors could enter the market with a newer technology that provides faster connection speeds.
• To compete, the startup must invest in the newer technology, thus increasing fixed costs. If these costs are passed on to customers, the startup is at a competitive disadvantage.
• If airlines agree to work with the startup, licensing fees will probably be proportional to the startup’s revenue. Thus, as revenue rises, licensing fees also rise.
• When renegotiating the contract, the satellite company could demand higher fees due to reasons such as higher utilization of capacity. This would also decrease the startup’s competitive advantage.
• If the initial service does not work well due to severe connection problems or network failures, the startup could gain a bad reputation and lose customers. The airline could also argue that since the startup failed to provide service as promised, the airline can cancel the contract and search for another in-flight broadband partner.
• Since this service relies on cutting-edge technology, the hardware probably needs to be frequently replaced in order to keep up with market trends. Old hardware could lead to competitive disadvantages that can reduce the startup’s market share.

Possible answer:

• The business model does NOT seem promising because the number of customers required to break even is above the current market potential.

The startup should try to limit fixed costs increases because such increases will negatively affect their current business model.

• If the startup could request that the airline be responsible for investing in, operating and maintaining the equipment, the startup reduces their risk of forced unplanned hardware investments.
• To test the calculated market size and current business model, the startup should roll out the business on a small scale.