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The market outlook for IFE technology

 

Let's begin with an executive summary of the expenditure on IFE hardware and passenger connectivity installations we forecast over the coming years:

• Fuelled by increasing deliveries of twin-aisle aircraft, total IFE hardware expenditure by airlines is expected to increase through to 2015 and reach US$2Bn

• Competition and new entrants into the IFE hardware sector can be expected to increase single-aisle (retrofit) IFE installations whilst simultaneously lowering the price point for IFE hardware

• Delivering IFE to passenger devices puts the content supply chain in direct competition with delivery channels on the ground

• Wireless IFE is expected to be worth less than 1% of embedded and overhead IFE deliveries in 2012

• IFE Content expenditure remains in the US$450-500m range in terms of total airline expenditure

• Movie yield continues to drop but increasing volume compensates overall income

 

IFEC is a small industry dependant on giant industries

 

• As the airline industry is subject to external factors – so is the IFEC industry

• IFEC is provided an opportunity from advances in consumer technology

• Those same advances raise expectations of passengers

• Consumer technology can be a substitute and a complement to IFEC

• The constraints of the airline industry can limit the potential of new technology

• Competitive pressures and cost constraints drive interest in low-cost and high-value products

• Content delivery is in particular a challenge for new suppliers in the IFEC sector

 

Total IFE hardware forecast:

• Fuelled by increasing deliveries of twin-aisle aircraft, total IFE hardware expenditure by airlines is expected to increase year on year through to 2015 and reach US$2Bn by the end of the forecast period

• Total hardware expenditure is largely dependant on linefit installations for twin-aisle aircraft

• Any change in IFE penetration on smaller aircraft will have a dramatic effect on the number of IFE installations

• This trend can only be expected to be magnified by the very low price points of wireless IFE systems, which are better suited to single-aisle aircraft if deployed as a standalone system

• Competition and new entrants in to the IFE hardware sector can be expected to apply downward pressure on prices in the future

• Single-aisle retrofit IFE installations have the potential to increase dramatically in numbers – whilst simultaneously significantly lowering the price point for IFE hardware

 

IFE hardware analysis: Wireless IFE

• It is apparent that wireless IFE represents both an opportunity and a threat to both overhead IFE, and to portable IFE solutions

• Wireless IFE potentially brings a rich, interactive experience to passengers, provided they are willing and able to use their own device

• The cost advantages over in-seat IFE and passenger connectivity systems have attracted a lot of interest in this technology from both airlines and suppliers

• Inseat power and an inflight connection would further enhance wireless IFE

• There is an opportunity for a supplier, or team of suppliers, to offer any combination of passenger connectivity, wireless IFE, overhead IFE, and portables

 

Outlook for passenger connectivity:

• Outside of the domestic US constraints on the growth of passenger connectivity services remain

• Historically, obtaining aircraft certification, satisfying international regulations, and completing roaming agreements with Mobile Network Operators (MNOs) have impeded the growth of passenger connectivity services

• Some constraints have been overcome but the business case remains an issue for some airlines

• Data from airports and from connectivity service providers themselves shows that smartphones and tablets are now more popular than laptops in terms of the percentage of total connections

• These smaller, more portable devices provide an additional means to connect and are more practical and more likely to be used on board a flight

• There is already some evidence that take rates are increasing

• We do see an overall trend of a ‘twin peaked’ usage rate profile between optimum and non-optimum fight profiles

• Suppliers in this sector can be encouraged by the potential prospect of airlines justifying connectivity in order to remain competitive

• However the airline industry is operating in an extremely challenging environment with an uncertain recovery path ahead

 

Connectivity installation forecast

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFE content supply chain:
• Increasing diversity in hardware platforms combined with demand for more timely content delivery makes content service provisioning a difficult space

• New aircraft deliveries tend to increase the variety of different IFE systems in active aircraft when airlines do not have funding for retrofit programs to achieve IFE uniformity

 

Content market challenges