Friday, December 23, 2011 at 1:56 pm.

Gogo’s IPO filing: 10 big takeaways

Gogo, the company that provides most in-flight wi-fi service in the U.S., just filed to go public, aiming to raise up to $100 million. Here’s a link to its IPO filing with the SEC.

Big picture: Most planes still don’t have wi-fi and most passengers still don’t buy it. With roughly 355 million passengers having flown on Gogo-enabled planes since 2008, Gogo has only provided 15 million sessions — about 4% take-up. I’d estimate that the average flight gets somewhere between 2-10 connections, depending on time of day, capacity, route, percentage of seats filled, etc. With more people getting smartphones, iPads, etc., and with Gogo starting to offer more services, it seems that rate should grow.

Gogo isn’t profitable yet and its revenue per passenger is still low, through growing. But if it can get more money per passenger, more passenger sign-ups, and more planes in its fleet — without major technical or regulatory problems, or competition — it seems that becoming profitable is eventually possible.

Gogo IPOI’ve gone through much of Gogo’s IPO filing. Here are some key points:

  1. So far, Gogo has outfitted 1,323 commercial planes with wi-fi equipment, with contracts for another 525. As of Sept. 30, Gogo represented 85% of wi-fi-equipped North American planes. But as of 2010, only about 16% of commercial planes in the North American market and about 6% in the global market were equipped for in-flight connectivity.
  2. Revenue is growing rapidly and its operating loss is shrinking, but Gogo is not yet profitable. In the first 9 months of 2011, Gogo reported $113.7 million of revenue, up 89% year-over-year. Operating loss declined to $26.5 million, down more than half from $66.4 million in the year-ago period. Service revenue (as opposed to “equipment revenue”) is now almost two-thirds of total sales. Since 2008, Gogo has lost more than $430 million on $282 million of sales.
  3. The number of passengers on flights with Gogo service reached almost 153 million in 2010, up from 624,000 in 2008. Gogo’s big pitch to airlines: In a world where fuel and labor costs are going through the roof, Gogo can provide new revenue streams and help differentiate against competitors that don’t have wi-fi. (“Passenger revenue from sources other than passenger ticketing, including paid amenities, represented 29% of total airline passenger revenue in 2010 compared with 16% in 2000.”) Of the ten North American airlines that provide wi-fi service, Gogo works with nine of them.
  4. But with new technology coming out for faster and more global in-flight wi-fi availability, Gogo will also have to keep up with the times and increase its throughput. Already, Gogo is worried about experiencing “significant capacity constraints beginning in the second half of 2013″ and potentially sooner. Plus, there’s the increasing risk of competition.
  5. Since August 2008 and through September 2011, Gogo “provided more than 15 million Gogo sessions to more than 4.4 million registered unique users.” That suggests the average registered user has connected more than 3 times, but fewer than 4 — and that the vast majority of people flying are not connecting. (Only 4% take-up of the 355 million cumulative potential passengers.) My guess is that usage among registered users is closer to 80/20, with a small base of repeat fliers purchasing the majority of wi-fi service.
  6. Gogo also has more than 700 private/business jets outfitted with Gogo service, and 4,600 with Iridium satellite service. This is almost half of Gogo’s revenue — mostly equipment revenue so far — and Gogo expects it to be a significant growth opportunity. (It’s also already a profitable segment of Gogo’s business, while commercial aviation is a money-loser.) Business planes with Gogo’s “air to ground” connectivity service generate about $1,800 in revenue per aircraft, per month.
  7. Gogo has its fleet wrapped up in long-term deals. About 95% of Gogo-equipped planes — representing about 42% of its consolidated revenue for the nine months ending in September 2011 — are under 10-year contracts, the earliest of which expires in 2018.
  8. But! It also relies on two big airlines for the majority of its commercial service revenue — and one of them is bankrupt. Delta represents about 45% of Gogo’s commercial aviation revenue and American Airlines — which just filed for bankruptcy protection — represents 18%.
  9. Total “average revenue per passenger” on commercial airliners in the first 9 months of this year was $0.41, up from $0.26 in the year-ago period, and up from $0.15 in full-year 2009. Let’s see where this goes in 2012 when more in-flight streaming entertainment services roll out. Right now, Gogo internet access/sponsorship revenue is about 98% of commercial aviation service revenue, while value-adds — including entertainment and e-commerce — are just 2%.
  10. Survey says… “According to a Gogo-commissioned survey, 78% of our users are likely to recommend Gogo Connectivity to others, 33% of our users have indicated that they are likely to switch airlines to be on a Gogo-equipped flight and 17% of our users have specifically changed their flight plans to be on a flight with in-flight internet. [...] Nearly 80% of Gogo users indicating they would use Gogo again on their next flight. [...] 27% of leisure travelers and 54% of business travelers are aware of Gogo, and more than 80% of Gogo users have indicated that their travel experience was made more satisfying because of Gogo.” (It’s interesting that most leisure travelers and almost half of business travelers are still not aware of Gogo. So that’s probably a growth opportunity on its own.)

Also: The airplane industry needs its iPhone