Something to chew on, folks. Thanks, Michael Planey!
Question – Do you think any one US carrier is more likely than the others to take the initiative and axe the Wi-Fi charge in a few years and wrap the cost back into its service?
Answer - I don’t currently know of any carrier seriously contemplating offering the inflight Wi-Fi gratis to the entire aircraft. In a couple of years, I expect that to change. Once the service becomes ubiquitous, there will be limited means of differentiating one airline’s offering from another. More bandwidth, faster up/downloads, exclusive content and terrestrial partnerships (i.e. AT&T or T-Mobile) are all possible ways to tweak the service but are not guaranteed to attract significant attention. On the other hand, offering the service for free to the entire aircraft would make the ‘splash’ that generates positive press and increases customer satisfaction. This becomes more complicated when one tries to analyze who may be in a position to do this in a few years. If the speculation is true that some carriers have signed deals that turn over all pricing controls to the service provider in exchange for reduced or free hardware, then those carriers will have their hands tied for many years. I think that the most interesting environment to watch will be Delta vs. AirTran. If those airlines have different contract terms from their service provider an opportunity may present itself to allow one carrier to be aggressive on pricing while the other is unable to respond in kind. Remember, a few carriers offer DBS-TV onboard, but only JetBlue does for free and they continue to get good publicity from that decision 10 years later.
Question - A number of folks believe that carriers will start offering in-flight Wi-Fi for free to business-class customers while still charging in economy. Do you think that would be sustainable as the appetitive for in-flight Wi-Fi grows?
Answer - It is a logical ‘baby step’, though I would say that the complementary offering may not be differentiated by class of service. The inflight ISPs should be sophisticated enough to offer more flexibility to their airline customers such as offering a lower price to Premium Frequent Fliers or passengers on full-fare tickets (such as Southwest Airlines’ Business Select), or even in highly competitive markets (American could offer a discount for passengers originating in Houston, or United could offer free service in Denver and put some pressure on Frontier and Southwest). I think that the more meaningful next step will be for the ISPs to offer ‘packages’ or ‘memberships’ to individuals and corporations via the airline. An individual monthly or yearly membership at a flat fee, or a blanket corporate package as part of the airline’s sales agreement would accomplish a few things: A) Simplify billing and expense reporting for all parties B) Remove the disincentive at the point-of-purchase (no more ‘pickpocketing’ or ‘nickel-and-diming’ complaints) C) Make it more attractive for the airline to sell Club / Lounge memberships, D) Give the airline one more way to compete for important corporate accounts, and of course E) Provide an incentive to passengers to remain loyal to that airline.
Question – It is believed that Aircell has fronted some or all of the cost for installing its systems with the promise of back-end revenue (Aircell and its clients have not confirmed this presumption, however). If this is the case, do you think Aircell can continue to do that? (US Airways recently complained that financing for IFE has dried up, and I wonder if US Airways wouldn’t love to get Gogo but now it’s a little late unless the carrier has got – or can find – its own cash!?!)
Answer - If that is true for the majority of their announced large customers (American, Delta/Northwest, and AirTran) then Aircell would need somewhere in the neighborhood of USD$80-100 Million assuming $80,000-100,000 per shipset of equipment and installation support. That is a substantial capital outlay on top of the $32 Million it bid in 2006 for the rights to the spectrum and the costs to develop and implement its own terrestrial network. Aircell has publicly stated that they are suitably funded to meet that commitment and I take them at their word. I do, however, suspect that the ‘no upfront fees’ offers have dried up for any new customers. It has been difficult for all businesses to gain access to new sources of funding. Aircell has moved past the initial hurdles of a start-up and received significant commitments from customers, but those customers are primarily domestic American carriers. There still seems to be a reticence amongst financial analysts to predict a rebound in airline profitability and I have to believe that has a negative affect on any major airline supplier’s ability to raise new funds.
Question - Are the likes of US Airways and United (which will do a small trial of Gogo) at a disadvantage from their peers as other operators quickly equip?
Answer - Let’s not forget that Continental hasn’t rolled out an inflight Wi-Fi product either. I suppose that it depends on how long it takes those carriers to implement a solution of their own. Airlines are forever seeking a ‘share-shift’ of even 0.1% versus their competitors so I expect that there will be substantial attempts to lure premium traffic away from the non-WiFi carriers. A savvy airline could offer discounts to other airline premium Frequent-Fliers to use the service onboard (show your Platinum / Titanium / Palladium card to the Flight Attendant and get a coupon for a free Wi-Fi session) and hope to capture some incremental traffic. In the long run, all inflight amenities have a tendency to level out and premium customers will return to the reasons they traditionally choose one airline over another — schedules, fares, reliability and service.
Question - Do you think Ku-band will take hold? LiveTV says it is now looking at Ka. Is that viable?
Answer - Ku-Band is certainly viable when ‘piggybacked’ onto other commercially available satellite networks as Row 44 proposes. Ka-Band maybe the future, but I haven’t come across anyone who can predict with conviction how soon that future will arrive. As we’ve seen with connectivity and IFE before, take your best estimate and double it. Then, maybe, just maybe, you’ll be in the ballpark for the technology to arrive in a cost-effective way.