In 2008, the number of commercial aircraft that offered in-flight wi-fi service totalled just 25, according to market researcher In-Stat. By the end of 2010, however, In-Stat predicts that number should reach 2000 planes. Based on these numbers, it's clear the airline industry sees in-flight broadband services as another critical offering for its customers-and also a way to make more money off travellers.
The top 10 US airlines have all started deploying in-flight wi-fi systems, according to In-Stat, and by 2013, airlines around the globe will likely have invested nearly US$500 million in on-board broadband equipment and services.
Here's the rub, though: Passengers aren't swiping their credit cards to pay for the service.
In-Stat VP of mobile Internet research Frank Dickson notes in a report that current "paid take rates" for in-flight Wi-fi service (a.k.a. passengers buying it) are below 2 percent.
"Providers have a lot of work to do to entice passengers to use the service," Dickson says in the report. "Significant investment has been made in on-board and on-ground infrastructure, and now the market will be tested as it tries to get more passengers to use the service."
A public that is resistant to pay
With such a captive customer base, especially those traveling on business who demand anytime/anywhere Internet connectivity, it may seem surprising that airlines cannot attract more customers to pony up the $12.95 for in-flight Wi-fi. (That's what it would have cost me on my last flight on Virgin America. I had incorrectly assumed the service was free and declined to use it once I saw the price tag. Another business traveller, seated next to me, paid for it and would expense it to his company. The Gogo in-flight internet service is one popular way passengers are connecting these days.)
In fact, the situation the airlines now face-customers refusing to pay for wi-fi-is entirely predictable.
For the last half of the decade, restaurants, hotels, airports and coffee shops struggled with whether to charge or not for wi-fi hotspot access in their establishments, even though customer surveys showed overwhelmingly that they expected gratis hotspot service, despised complicated log-in/payment processes, and showed preference to those businesses that offered it for free. (In-Stat survey research finds that availability of free Wi-fi does influence venue choice among 95 percent of users.)
Then the dominos began to fall. In 2009 and on into 2010, wi-fi hotspots became as complimentary as napkins and ketchup at many restaurants and retail establishments. For example, McDonald's, Barnes & Noble and Borders joined Panera Breads in offering the free service.
Then in July 2010, Starbucks reversed course on its long-standing in-store Wi-fi policy and now offers free Wi-fi service to customers in its U.S. stores-freeing customers from credit-card log-in screens or AT&T connectivity procedures.
Notes Amy Cravens, an In-Stat market analyst, in a report: "Branded hotspot venues like McDonald's and Starbucks have made free access pervasive, which may lead to a public that is resistant to pay."
Wi-fi stakes on a plane
Dickson states in his report that the airlines, much like retailers, saw strong customer usage rates during "free trials associated with service launches." However, he adds, "paid usage has been disappointingly low."
Since the recession hit in 2008, many airlines found innovative ways to fleece their passengers via new bag and priority boarding and seating fees.
Offering complimentary in-flight wi-fi to passengers could be a welcome service offering and competitive differentiator among customers enraged by new airline fees.
"Our research shows that while revenue may not always be directly gleaned from the hotspot offering," In-Stat's Craven notes, "free wi-fi has a significant value in bringing customers to a venue."
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