Why aren't travelers paying for in-flight WiFi?

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Aircell announced [2] that its in-flight Internet service is now operating on more than 600 commercial aircraft and that it served its one millionth customer in October. The company said its current rate of expansion with users is approaching 100,000 per week, with 2 million users expected in January.

Glenn Fleischman at Wi-Fi Networking News [3] quickly queried the company to discover that these numbers reflect sessions and not actual users. Aircell hasn't released the number of total unique users it has nor any revenues or other information such as paid vs. free users, he pointed out. American Airlines is offering the service for free during the holidays courtesy of Google, while on American and Delta, the first session of the Gogo service is free to first-time users.

An article that appeared earlier this month in Portfolio.com [4] said less than 10 percent of all people who take flights that offer WiFi service actually use it. The publication cited industry insiders, since everyone is tight-lipped on the actual number of people using the service. But some airline executive comments seem to confirm it.

This past summer, Doug Murri, Southwest Airlines senior manager of technologies, proclaimed that passengers "want to be connected, [but] they want it to be free," according to the article. For Alaska Airlines, which, like Southwest Airlines, is testing Row 44's satellite service, has reported that its passenger usage falls off dramatically when the airline charges a higher fee. Alaska Airlines executive Craig Chase recently told the Wall Street Journal that even charging $1 for service greatly reduced the number of users.

Tim Farrar, analyst with TMF Associates, is quite dismal about in-flight WiFi's prospects: "There won't be enough paying users of in-flight broadband for both network providers and airlines to make a profit on the cost of deploying equipment and running a network," he told Portfolio.com. "Not in a million years."

Aircell was supposed to have a better cost structure than the failed Boeing Connexion service, which Boeing shuttered after investing six years and more than $1 billion in the project. It does. Connexion weighed about 800 pounds and carried high fixed costs. Aircell's service is cheaper to install and operate. Row 44's satellite service is a more expensive proposition but is attractive to Southwest Airlines and Alaska Airlines because of its ability to offer service in the areas they fly the most.

But the problem at this point--and what plagued the Connexion service--appears to be unpredictability of when and where the service is going to be available. People who used the Connexion service actually liked it, but they didn't have enough frequency of travel internationally--when the service was available--to get into the habit of using it. Despite the fact that many travelers carry PCs and smartphones on airplanes, people are simply accustomed to getting all of their business done before they board the plane. And if they don't know whether WiFi is going to be available on the flight, they certainly won't anticipate using it. Aircell understands this. When I interviewed an Aircell executive in 2006 regarding how Aircell would fare better than Connexion, one of the things he cited was the need to be present on enough airplanes so that consumers will become aware of the service and become dependent on it [5].

Aircell has the major airlines under its belt, such as American, Delta and United, and all are in varying stages of equipping their aircraft with the Gogo service. However, the 600 aircraft Aircell recently reported is far from the 2,000 aircraft that former Aircell CEO Jack Blumenstein predicted the company would have at the end of 2009 [6]. He made that prediction in mid-2008.

Unfortunately, in-flight WiFi is a chicken-and-egg scenario. Revenue likely won't ramp up until more planes are lit up and travelers start becoming comfortable with the fact that WiFi will be available on their flight--like that over-priced boxed snack they can buy for $7 on United Airlines. But that's not how airlines like to see it. They want to see evidence that travelers will pay now. Of course Aircell and Row 44 would like to see that too as they bear the brunt of the cost for deploying the service while little revenue is coming in.

And certainly one can't ignore the simple logistics of using a laptop on a plane (as Portfolio.com also points out). Unless you're in first class, it's excruciating, especially when that person in front of you decides to recline the seat.

So the question is: Will airlines have the patience to see this through, and will these startups have the funds to keep it going until revenue starts flowing in? --Lynnette [7]