Our vertically integrated model has kept us flying high during the temporary grounding of our airline partners.
COVID-19 has shaken the world to its core, taking loved ones before their time and bringing many businesses to their knees. As the pandemic starts to subside and countries pass through the peak of the virus, it is time to take stock of where we are and think positively about the future.
Here at Viasat, we are thankful that our diverse business model has enabled us to weather the storm in pretty good shape. The vast majority of our core businesses sustained through the crisis – particularly our residential broadband division, which has seen significantly increased demand as shelter-in-place restrictions have forced people to work and school from home.
Those same restrictions, however, have limited people’s ability to travel. This has had a severe impact on another sector we serve: the airline industry. Air transport operators have been forced to ground large swathes of their fleets and make difficult decisions as revenues have collapsed. In its most recent forecast, the International Air Transport Association (IATA) predicted that global airline revenues would be halved this year, compared to 2019.
“Financially, 2020 will go down as the worst year in the history of aviation. On average, every day of this year will add $230 million to industry losses. In total, that’s a loss of $84.3 billion,” said IATA Director General Alexandre de Juniac on June 9.
As a provider of award-winning high-speed in-flight connectivity services to some of the world’s largest and most well-known carriers, Viasat empathizes with our airline partners as they navigate this difficult environment. But we know they will emerge from this dark cloud and we are confident that demand for airborne Wi-Fi will be even stronger than before the pandemic. As IATA’s de Juniac put it: “The worst of the collapse in traffic is likely behind us.”
Supported by the strength of Viasat’s other divisions, we are in a great position to continue growing our IFC business – which accounts for less than 10% of our annual revenues – as the airline industry recovers from this challenging period and flies out of the storm.
Strength through a diverse business
Viasat Chairman and CEO, Mark Dankberg, recently likened the vertically integrated nature of our business to that of Disney.
In much the same way as our IFC business has felt the effects of COVID-19-related lockdowns, Disney’s theme parks around the world have had to temporarily shut their gates. But the thrill of riding rollercoasters and meeting favorite movie characters remains unchanged, and the crowds will undoubtedly flock back to these parks as restrictions ease.
In the meantime, demand for the Disney Plus entertainment content-streaming service soared in the second quarter with more than 50 million subscribers signing up in its first five months.
“Right now, those theme parks are a huge drag because people can’t go to them. But I don’t think there’s another media company in the world that wouldn’t instantly take over those theme parks if they could,” Dankberg told the 2020 Bernstein Strategic Decisions Conference on May 27.
“I think there’ll be huge demand for them, and that’s how we look at our airlines business. Right now, the airline business is very stressed, and we have a bunch of our business tied up in that. But we think that business is coming back, and we wouldn’t trade that.”
Unlike some of our competitors who are heavily or solely reliant on providing connectivity to the aviation and maritime sectors, Viasat’s revenues are generated by a broader range of sectors. In addition to a broader revenue base, this means we have the flexibility to direct bandwidth toward where it is needed most at any given time — without any detrimental effect on our other businesses.
“We’re very careful not to repurpose it in a way that’s going to inhibit our ability to service our airline customers as that comes back. We’re going to be conservative on how we repurpose the bandwidth,” Dankberg said during the Bernstein conference.
Heading into the COVID-19 crisis, Viasat’s IFC business was growing fast and performing well. Our revenue from this sector was up 13% year-over-year in Q4 2020 – even with the impact of the pandemic late in the quarter. We ended the year with our IFC system installed on close to 1,400 aircraft, and as air travel recovers we expect demand for in-flight Wi-Fi to be even stronger than before.
Working from home has taught us all to become much more connected, and this will continue when people travel. Even in the midst of the pandemic, there is evidence that airlines have not lost sight of how important it is for their passengers to connect to the internet when they fly.
For instance, Delta Air Lines informed its Ku-band satellite connectivity provider on June 11 that it “does not believe there is currently enough Ku satellite capacity over North America to meet its extensive user experience expectations for free Wi-Fi service on its desired timeline,” according to this article on Runway Girl Network. The airline is looking to add another provider to equip its fleet, proving that IFC decisions are still being taken despite the pandemic.
Viasat is moving ahead with our ViaSat-3 satellite constellation, which is expected to begin launching in 2021. These satellites will not only let us enhance our Ka-band services in the U.S., but also expand our offerings across the globe.
We believe the future of IFC is bright, and we are excited and proud to count the segment alongside our other diverse businesses.