In-flight Internet connectivity service provider Gogo Inc (NASDAQ:GOGO) just seem unable to have a stable hook-up with investors. Since its IPO late this June, the company has so far been unable to reach its $17 initial public offer price and has traded at the $12.64–$16.32 band after that lackluster market entry.
The prospect of Gogo Inc (NASDAQ:GOGO)’s equity ascending to higher levels apparently hinges mainly on the pricing structure of its service to make it more attractive to the mainstream airline passengers and not just appealing to business travelers. The company itself says that only 6.2% of passengers on planes outfitted with its Wi-Fi systems availed of its service in the first quarter.
Bandwidth issue
Though this usage was up slightly from the year-earlier quarter’s 5.6% clip, it remains relatively small considering that close to an estimated 2 million passengers fly in the U.S. domestically each day. And this is not even includes the larger potential of the international passengers.
Solutions are incoming
A firm resolution of these hurdles, however, looms large on the horizon. US Airways Group, Inc. (NYSE:LCC), one of several Gogo Inc (NASDAQ:GOGO)-equipped airlines, recently announced an expansion of its inflight connectivity service. Significantly enhanced Wi-Fi capacity has been installed at the airlines’ Airbus 319, 320, and 321, as these aircraft were retrofitted with Gogo’s upgraded air-to-ground ATG 64 under the expansion initiative.
In-flight wireless access is now available in 90% of US Airways Group, Inc. (NYSE:LCC)’ domestic flights with the completion of Gogo Inc (NASDAQ:GOGO) Wi-Fi installation on its fleet of 270 Airbus and Embraer 190 aircraft. The service is also now available in the fleet of 58 aircraft flown by Republic Airlines as US Airways Express.
Search for more airline revenue streams
With its recent move, US Airways Group, Inc. (NYSE:LCC) is leveling up to Delta Air Lines, Inc. (NYSE:DAL) which provides Gogo Inc (NASDAQ:GOGO) inflight Internet access in nearly all its domestic flights. Delta Air, meanwhile, is also eying online connectivity in its international flights which another global airline, Norwegian, has described as a great source of competitive advantage.
Notably, marketing and customer enhancements are among the priorities of airlines in their quest for additional income streams amid the highly competitive industry environment that they operate in. Hence, expect an extra push moving forward from Delta Air Lines, Inc. (NYSE:DAL) whose June domestic revenue passenger miles, or RPM, slipped 0.8% to 10.5 billion from a year earlier.
Working out price calibrations
US Airways Group, Inc. (NYSE:LCC), for its part, can’t let the momentum dissipate on its 7.4% year-over-year RPM gain in June to 4.4 billion. Conceivably, it has more potential revenue generators up its sleeves besides possible future internet connectivity on intercontinental flights or the bags VIP delivery service that it introduced recently.
It should also follow that the creative juices of Gogo Inc (NASDAQ:GOGO)’s marketing people are currently hard at work in seeking to maximize possible revenue from in-flight Wi-Fi. The company has emphasized that their service is still in its early days and that it still tweaking with pricing models.
Opportunity areas
Rates calibrated depending on the personal electronic device, or PED, used, e.g. laptop, smartphone, or blackberry, is one way by which Gogo Inc (NASDAQ:GOGO) can refine its revenue management from connectivity. The looming possibility of the FAA easing restrictions on PEDs on takeoff and landing is an added boon toward this direction.
Significantly, the FCC has recently granted Gogo Inc (NASDAQ:GOGO) a license for its Wi-Fi via Ku-Band enabling Internet connectivity of flights over an ocean. This licensing brings Gogo in-flight connectivity closer for the international flights on Delta Air Lines, Inc. (NYSE:DAL). It also provides tailwinds for Gogo’s in-flight entertainment offerings, which should be attractive to the long-haul airline passengers.
Final take: boarding call heard
Given all these, initiating a position on Gogo Inc (NASDAQ:GOGO) at its current price level indeed holds bright promise. It is worthwhile noting as a recap that bullish sentiments have been expressed by the majority of the analysts, which recently extended overage on the company. Now with a consensus price target of $16.88, Gogo looks like it is finally gaining the attention that was sorely lacking when it debuted in the market.
Arturo Cuevas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Why In-Flight Wi-Fi Is Earning Its Wings originally appeared on Fool.com.
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