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Why Shares of Gogo Jumped 10% Today

By Lou Whiteman – Sep 18, 2019 at 7:48PM

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Free WiFi, and with it more business, is coming to one of the company's key partners.

What happened

Shares of inflight broadband provider Gogo (GOGO 3.63%) rose as much as 12% on Wednesday after the CEO of Delta Air Lines said his company will soon offer free WiFi on flights. Gogo is Delta's partner in the effort, and the rollout would mean more business for the company.

So what

Gogo has flown through the typical turbulence associated with growing tech companies in recent years, with investors weighing the substantial potential of the business with results that haven't always met expectations. Gogo's core business providing inflight connectivity has been hampered by airlines attempting to monetize the service, at times limiting demand, and the technical hurdles that come with a massive rollout.

An airplane taking off.

Image source: Getty Images.

Delta has expressed an interest in bringing WiFi to all customers, but there are technical challenges to the effort. Charging for WiFi limits its use and allows those who are using it access to more bandwidth and a better experience. Delta was hesitant to make it free until it was sure the technology was up to snuff and able to handle the expected higher demand.

The airline apparently believes it is growing close to solving that puzzle. During an appearance at the Skift travel forum, CEO Ed Bastian said Delta will soon offer free inflight WiFi.

Now what

Delta going to free WiFi should translate to more revenue for Gogo and a better utilization rate for its technology. It also seems likely it will lead to more business over time from Gogo's other airline partners, as the airlines tend to copy each other's service enhancements. In addition to Delta, Gogo currently works with United Holdings and Alaska Air Group in the U.S.

Gogo shares have been volatile over the years, and even after Wednesday's gains currently trade 55% below the company's 2013 IPO price. That turbulence is unlikely to fade anytime soon, but with the Delta announcement, momentum is certainly now moving in the right direction.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.

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