WiFi in the Sky: Airlines Bring More Internet Access on Board

Airlines are about to learn a lesson that countless coffeehouses grasped years ago: free WiFi can pay off.

While worldwide carriers this year will almost triple the number of airplanes that offer onboard Internet access, fewer than one in 50 passengers currently fork over the $5 or more to connect their laptop computers or smartphones to the Web in flight, according to a recent report by Scottsdale, Ariz.-based research firm In-Stat.

Even at that adoption rate, in-flight WiFi will only generate about $95 million in revenue for airlines this year, In-Stat says. That's airplane peanuts compared to overall worldwide revenue from so-called ancillary charges, including nontransportation services such as extra baggage, onboard meals and seating upgrades. Those revenues jumped 43% last year to 11 billion euros ($14 billion), with United Airlines (UAUA), American Airlines (AMR) and Delta Air Lines (DAL) each clearing more than 1.1 billion euros ($1.4 billion), according to a July report from IdeaWorks and Spain-based global-distribution-systems operator Amadeus.

But more airlines are expanding their WiFi services. Delta, which debuted its onboard WiFi service in late 2008 and already offers it on more than 70% of its 730 aircraft, is now outfitting some three dozen additional planes. Southwest Airlines (LUV), which started offering WiFi last year, plans to make it available on all its planes by 2012. US Airways (LLC) also is growing its WiFi range, adding onboard WiFi to about 50 planes since March.

More Planes to be WiFi Hotspots

Overall, about 2,000 commercial aircraft will offer in-flight WiFi by the end of the year, up from about 700 at the end of 2009, In-Stat projects. Much of the growth is thanks to Aircell, which won the Federal Communication Commission's exclusive air-to-ground broadband frequency license in 2006. Carriers such as Air Canada, Alaska Airlines (ALK), American, Delta and United use Aircell's in-flight Internet brand, Gogo.

"The spike in deployments in 2010 reflects Aircell's herculean effort to create a critical mass of deployed planes in a short time period," says Frank Dickson, vice president of research at In-Stat. "By 2012, Aircell will have covered 80% of US mainline aircraft."

Not every airline is ready to commit to providing in-flight WiFi, however. Some of the world's largest airlines have either yet to commit substantially to the service or have leveled off their investment. WiFi is available on less than 30% of American's 619 planes, even though the airline began offering the service in 2008, while United has onboard WiFi on just 13 of its 652 planes. Continental Airlines, which is merging with United, doesn't offer the service.

That's a bad move, according to Henry Harteveldt, a principal analyst at Forrester Research. "Airlines that choose not to (offer WiFi), especially for flights two hoursor more, are going to regret it," he says. "Those that ignore this will find it will cost them customers."

For carriers that do offer the service, high prices might also be keeping some passengers from connecting, he says. Because of its industry dominance, Aircell sets in-flight WiFi pricing on most planes. Connecting a handheld device for less than 90 minutes costs $4.95, while connecting a laptop for more than three hours costs $12.95.

Price Falling, Users Growing

As the number of planes with WiFi increases, the average price is expected to fall, Dickson says. And as airlines strike up so-called access partnerships, which will work much like on-the-ground WiFi "hotspots," and simplify the login and reimbursement process for business travelers, more passengers will likely start using WiFi in flight, he adds.

Additionally, corporations that have large accounts with airlines may be able to start negotiating for travel packages or bundles that would enable free or discounted WiFi service for frequent flyers, says Douglas Quinby, senior director of research at PhoCusWright.

With those business agreements in place and a growing array of subscription plans available through Aircell, In-Stat predicts that the average price of connecting to the Web on board will drop 24% between 2010 and 2014.

Nonetheless, some airlines hope WiFi will bring them an additional revenue stream. Virgin America, for example, saw its total ancillary revenue soar 40% this year, according to spokeswoman Abby Lunardini. While the airline doesn't disclose how much of that revenue comes from WiFi specifically, the jump came as the airline became the first to offer WiFi on all 28 its planes in May. About one in five passengers use WiFi, with that number jumping to about 30% for some long-haul routes, Lunardini says.

Many carriers remain conservative about WiFi's prospects. Continental is "reviewing options" for WiFi service, according to spokeswoman Mary Clark. JetBlue (JBLU), which in 2007 was the first carrier to offer in-flight email on one of its planes, also is "taking a wait-and-see approach" to broader WiFi service, spokeswoman Alison Croyle says.