Optimism ‘Starting to Emerge’ at Gogo After ‘Devastating’ Q2, Says CEO
Gogo took a “devastating” Q2 hit from the COVID-19 pandemic's obliteration of commercial airline passenger traffic, said CEO Oakleigh Thorne on a Monday investor call. “It certainly was an extraordinary quarter, but for all the wrong reasons,” he said. “If you sell internet on an airplane and no one’s on the plane, it’s tough to make a living.”
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Q2 revenue in its commercial aviation (CA) business plunged 72% from a year earlier, said Thorne. EBITDA fell “into negative territory” for the first time since 2013, “despite very significant cost reductions,” he said. Gogo furloughed about 60% of its workforce in May and eliminated 14% of its jobs permanently, effective this coming Friday.
There are “green shoots starting to emerge” in Gogo’s CA recovery, said Thorne. Pre-pandemic, the company was averaging 37 million passengers monthly on equipped aircraft, he said. That “plummeted” to 1.9 million in April, he said. Traffic recovered somewhat to 3.9 million in May and 7.1 million in June, he said. “We’ve continued to see steady increases in flights, load factors and user sessions in July and August.”
The inflight connectivity provider has “enough liquidity” to survive the pandemic, “unless there’s another major setback” from COVID-19, said Thorne. The long-term survivability plan assumes U.S. air passenger traffic by year-end will return to half of what it was in 2019, and to 71% of 2019's volume by the end of 2021, he said.
The increasing number of daily flights in North America is a “good barometer” for the improving health of Gogo’s CA business, said Thorne. The business was averaging a little more than 10,000 flights daily, pre-virus, he said. That declined to 2,300 daily “at the bottom of the chasm” in April, then rebounded to 2,700 in May, 3,500 in June and 5,300 in July, he said. “In August, we’re averaging a little more than 6,000.”
Passenger “load factors” also grew progressively, from 10% in April to 40-60% this month, “depending on what airline,” said Thorne. That “bodes well” for Q3, he said. The volume of daily Gogo inflight internet “sessions” -- 125,000 in normal times -- “collapsed” to 11,000 in April, rebounding to 40,000 in August, he said. “The CA North American market is recovering -- still way off from where it was last year, but it is recovering nonetheless.” The stock was trending 11.6% higher Monday at $3.62.
Outsiders recently approached Gogo to ask if its CA business is up for sale, said Thorne. “We’ve long talked about the benefits of combining our CA division” with another service provider, a satellite operator or an avionics company, he said. The novel coronavirus “has accelerated consolidation discussions as industry players look to emerge from the crisis with the strongest portfolio of assets they can to capture future industry growth,” he said.
“Several parties expressed interest in our CA business” during the quarter, said Thorne. Gogo launched a “formal process” to evaluate its “strategic options,” he said. “We’ve been in extensive discussions with multiple parties and feel optimistic that a deal may happen.” Gogo doesn’t want to endanger the negotiations “by saying too much publicly,” so it won’t comment further “until it is appropriate to do so,” he said.