KLM Exec Talks Viasat Deal, and Today's IFC Ecosystem

Boet Kreiken, executive vice president of Customer Experience for KLM talks to Via Satellite about the “Wi-Fication” of KLM’s fleet, and how the airline might use connectivity to improve the customer experience going forward. In this open conversation, Kreiken talks about a negative experience KLM had with satellite in the past, and what lessons the industry can learn as a result.

VIA SATELLITE: There are now potential satellite options across multiple orbits: Low-Earth Orbit (LEO), Medium-Earth Orbit (MEO), and Geostationary Orbit (GEO). As an airline, are you confused about the differences in satellite technology?

Kreiken: When we started looking into connectivity, there were no satellite experts in the aviation industry. It was a new field of expertise. So, we worked with a couple of consultants, both in the U.S. and Europe in order to get all the knowledge and information about bandwidth and the technical operations for our engineering and maintenance division. Our legal team came to realize these were very complex contracts when you look at issues like bandwidth pricing, use by customers, scalability, performance, and non-performance. They needed to have better knowledge of satellites.

VIA SATELLITE: What do you need from satellite providers?

Kreiken: We look for coverage and global and European reliability. If you are on an aircraft, and you are working on a document and suddenly it stops, this is not acceptable. If you only have limited capacity and it is capped, it needs to work during busy and quiet usage periods on the aircraft.

We also need back up. We had a case in the last couple of years where a satellite was out of action. It took months and months for one of our suppliers to solve this. We then had to communicate to customers that on certain routes, we no longer had coverage. We had two suppliers, so it meant we had connectivity on some aircraft, but not all aircraft. This added to the confusion. Passengers buy a KLM ticket, not a satellite provider ticket!

You then have the unit cost. You need contracts where the price goes down when it hits a certain industry average, similar to what you see in the PC and chip industry.

There is also the data element to this. I am the executive in KLM responsible for the customer experience, but I am also responsible for customer data. Data privacy is vital when providing an autonomous work/life balance. It will become more important if you enter into an era where there are more conflicts in cyberspace.

The last thing I would like to mention is the inter-modularity. If there is new technology, can you do the same things with the equipment you already have today? The smoother the technology evolution, the better. We want minimal costly ground time and maintenance/upgrade costs for our fleet and aircraft. We fly different types of aircraft and so we may need different types of satellite coverage.

Wi-Fi and the required bandwidth are still an expensive service, even though it is becoming more of a service hygiene factor and is basically loss-making in the existing business models, versus the revenues we get out of it.

VIA SATELLITE: You mentioned an incident where it took months to fix an out of service satellite. As an airline, have you had significant frustrations in dealing with the satellite industry?

Kreiken: This was not a good incident for KLM. It was solved, but it should not happen again. It showed the sensitivity of the satellite business. You can’t just launch a new replacement satellite in a couple of days. We look at the capacity planning of the satellite and the connectivity suppliers. At the moment, the inter-connected and vertical model could be considered slightly more advanced than the more horizontal ones. But in the end both models face the same issues: data streaming, bandwidth, automatic data extensions, coverage, cost/income models of the airlines.

VIA SATELLITE: At the recent SATELLITE 2021 Digital LEO Forum, Norm Haughton of Air Canada said he can see Air Canada easily moving to LEO once it is available. Can you see LEO in KLM’s future?

Kreiken: Why not? If it fits the criteria and if it is better, then the answer will definitely be “yes.” I am not a satellite expert, but we are seeing the first constellations in LEO. KLM may go for a combination of LEO and GEO. But, with all of these models, I have to stress the importance of data privacy. One of KLM’s questions to any LEO operator would be how secure are they? Also, you have to look at unit cost, would this then mean the equipment is cheaper or more expensive? What are the trade-offs?

VIA SATELLITE: What was the significance of the recent deal with Viasat? Why did you choose Viasat and what you were looking for in a partner?

Kreiken: We already had deals in place with Panasonic and Gogo. We also wanted to have connectivity in Europe. We don’t want to have one supplier, but we don’t want to have five suppliers either. This has been a long process, it took us at least 14 months before we signed the deal with Viasat.

You look at coverage for Europe of course, you look at scope, you look at scalability, costs, service levels, performance penalties, and technology. If you look at this in a European context, we were the first to have Viasat in Europe. So, it was a pretty bold move from KLM. We need to have total trust in the Viasat network, so we took our time before making decisions

VIA SATELLITE: We have seen Intelsat acquire Gogo this year in one of the most interesting deals in the satellite sector. Do you think this kind of vertical integration benefits airlines?

Kreiken: This is an extremely interesting subject. I am a big fan of Andrew Grove, CEO of Intel in the 1990s. I read his book “Only the Paranoid Survive,” and I completely relate to this statement. Grove told us that everything in the chip industry was vertically integrated, the same company made chips, as well as the computers. But then the chip industry changed in a more horizontal manner. You had a vertical stack, the PCs, the screens, and the chips — different suppliers. A horizontal model was created, but it was not layered.

I am not a satellite expert, but I see the satellite industry as being in the middle of this horizontal and vertical approach. They started horizontally — different satellites, different antennas, and it was very complex. However, Viasat came at it from a completely different direction. They were more vertically integrated, and made the satellites and the equipment themselves. I think years from now we will end up more in this horizontal area, as assets like expansive aircraft are also traded worldwide and the connectivity infrastructure is part of the sales price, the attractiveness and complexity and/or eventual switching costs.

KLM has made huge investments in the next generation of Wireless Access Points [WAPs]. We have to put these on the aircraft, but it is a complex process. But, now we want to have systems we can click on/off to cater for constantly new technology. Step by step, this is going toward a horizontal model. The question is where do airlines need a vertical approach, and where a horizontal approach? I am open to any model as long as it works well for airlines such as KLM.

VIA SATELLITE: A lot of people believe that the free model will win out and airlines will have to find other ways to get an ROI on the investment into IFC. What are your thoughts on this?

Kreiken: This is a question about segmentation. We have high quality products at an affordable price for business class, premium comfort (as of 2022) and economy class customers. Connectivity will be 100 percent part of this offering. But, if you pay $5,000 for a business class ticket, people don’t expect to pay for connectivity on top of that. It might be completely different in economy. We pay millions for connectivity, so we need to get an ROI on this. I think in the end, super loyal customers and business customers will get it for free. For economy class, you will see a differentiation between free, partly paid, and fully paid.

The next step could be paying via your own telco account, for example, via BT if you are based in the U.K., or Deutsche Telecom in Germany, bypassing the airline completely. This may be positive for the airlines and the customer because they can keep track of what you are using. The large providers need access to the airline cabin also serving their customers. So maybe some co-creation and new ecosystems from an economic and Wi-Fi operating costs model perspective might emerge.

KLM is one of the few airlines with its own KLM portal, and this allows us to have an uninterrupted relationship with the customer. Throughout the journey, you have the same interface, no unnecessary advertising. We have full control on what we show and don’t show to our customers.

VIA SATELLITE: Has KLM had to scale back its connectivity plans as a result of everything we have seen this year?

Kreiken: COVID has had a major impact in terms of freedom of investment and our capital expenditure plans. We have scaled back enormously as a company, so we are spending hundreds of millions less in terms of capital expenditure. So far, it hasn’t impacted our connectivity strategy because these deals were already done before the pandemic broke out. In terms of our intercontinental fleet, we now have 90 percent of our fleet connected. In March next year, it will be 100 percent.

VIA SATELLITE: In light of COVID, has connectivity become more important than ever, as passengers want to access up-to-date health and safety information?

Kreiken: Yes. Even apart from COVID, people expect to be connected. This has already been taking place over the last couple of years, and people want to be assured about health and safety. Preparation takes place before people fly. We have a preparation hub for journey documentation. We have 186 countries with different regulations worldwide, and regulations are changing all the time. We aim to help and ease the complexity for the passenger. We inform our customers about where they can fly, our extensive hygiene measures, what the passenger should do, and where the vaccination centers are at a destination, for example.

VIA SATELLITE: How will the passenger experience as it relates to connectivity change as a result of events of the last year?

Kreiken: The next stage is that everything that happens on the ground — in terms of disruptions, changes, or additional services that people would like to buy — you will now be able to do this in the air. Now, the interaction between the airline and the passenger is complete. You have a captive audience from anywhere between eight to 12 hours on an aircraft. You help them to continue their life and interact with you, for instance about the car rental or the weather conditions at the destination.

VIA SATELLITE: What kinds of new apps/services are you looking to develop for passengers as we head into the second half of this year?

Kreiken: Everything we do is being digitized. Due to the huge impact of COVID, the amount of money we have right now to invest in digitization is limited. You will see certain developments like pre-ordered meals, for example. We are also waiting to hear from the European Commission about COVID-19 health passports, and when and how these might be implemented. It doesn’t matter if you are at home, in your office, or on a flight; you expect continuous service. You need to have a smooth service throughout, even if plans change. We are going to develop these products like you would have at home.

VIA SATELLITE: Finally, what trends do you see taking place in the IFC market?

Kreiken: There has already been some consolidation, I would expect to see more scale and scope. You will see solutions for airlines in LEO, GEO, and MEO when it comes to satellites. What is important for us on the technology side — we need new and lighter antennas. Where are they now? Where is the ‘click and go’ technology, where we can change things in two weeks, and not eighteen months. We want less ground time, less weight, more efficient fuel consumption. We want to be able to make changes quicker.

You will see more claims from customers if the internet is not available when we promise them it is. These are important legal issues to consider. If I fly KLM, and the internet is down, where can I put the claim?

Over the next five years, I think you will see a lot of technological change. We need it. What is important for us is how quickly can we apply it, and do it in a way that keeps our operational costs down? I think you will have one or two new contenders in this market, and one or two big players will fail. The amount invested in space-based capabilities here is huge. It is a very dynamic field and a beautiful area in which to work in. VS