Launched four years ago, the use of Wi-Fi on U.S. airlines has yet to catch on, with estimates that the wireless technology is still used by only 7 percent of the flying public.
There are a number of reasons: With Wi-Fi cropping up for free in many airports and public locations, passengers don’t want to fork over as much as $10 for a flight of a few hours. Passengers also may not know when Wi-Fi is available on a flight since the airlines provide the wireless service on only a small percentage of their planes.
“The 7 percent [of in-flight Wi-Fi users] isn’t too bad,” said Amy Cravens, an analyst at In-Stat, since 7 percent in 2011 is an increase from 4 percent in 2010. “However, the service isn’t profitable at these levels, so everyone is hoping it improves.”
According to In-Stat, the nation’s airlines collected $155 million in charges for onboard Internet service in 2011, and are expected to collect $225 million in 2012.
The service primarily attracts regular business customers who fly long distances and want to stay connected to the ground via email. Monthly unlimited plans cost $40 a month from Wi-Fi in-flight supplier Gogo Unlimited, formerly Aircell.
“Wi-Fi on planes is still relatively expensive and often unreliable,” said Jack Gold, an analyst at J. Gold Associates. “As such, most users aren’t compelled to connect.” A Wi-Fi network on a flight crowded with online business customers can quickly bog down, he noted.
About 16 percent of the North American commercial fleet had Wi-Fi service in 2010, which isn’t enough for the general public to get accustomed to expecting Wi-Fi service when they fly, analysts said.
“The market is still nascent,” Gold added.
One thorny problem is how users are supposed to get laptop and smartphone power when many planes don’t have power outlets at passengers’ seats. “Wi-Fi and surfing use lots of power,” he added.
American Airlines, which is undergoing a major restructuring and has been committed in the past to offering Wi-Fi on its planes, is planning to invest $2 billion a year in renewing its fleet. That money could include more accommodations for Wi-Fi, in-flight entertainment and in-seat power in future planes, analysts predicted. American did not respond to a request for comment.
GoGo has equipped 1,200 commercial aircrafts with Wi-Fi using a plane-to-ground technology. Its customers include American, AirTran, Delta, Virgin America and others.
After an auspicious start in 2008, GoGo lost out on equipping United with Wi-Fi last fall when the airline committed to a relative newcomer, Panasonic Avionics, which relies on Ku, a plane-to-satellite technology.
Shortly after losing United to Panasonic, GoGo filed an initial public offering in December to raise cash for expansion and next-generation technologies, including a satellite-based system called Ka. In a statement, GoGo described Ka as a system that “will outperform Ku satellite and will allow GoGo to be the only provider able to meet the full-flight connectivity needs of our airline partners on a cost-effective basis, including regional jets, mainline fleets and international service.”
GoGo officials are in a quiet period and will not talk publicly about their future prospects, referring instead to an IPO prospectus. “Passengers on commercial and business aircraft are increasingly seeking to remain connected in flight,” the IPO statement reads. “Airlines are under pressure to remain competitive and must attract passengers by improving services while simultaneously reducing costs. We believe the intersection of those trends creates a meaningful opportunity for Gogo.”
Gogo’s IPO puts a premium on expanding the number of planes that will want Wi-Fi, including business jets. Even though Wi-Fi usage could be considered less-than-expected today, GoGo’s IPO said there were 15.6 million connections over in-flight Wi-Fi in 2011 and that figure will jump to 96.9 million connections by 2015. In a similar fashion, In-Stat has predicted revenues from in-flight Wi-Fi will mushroom to $1.5 billion in 2015.
Analysts said one reason United didn’t sign with GoGo was to avoid a long-term contract, underscoring the need of all the airlines to find ways to make in-flight Wi-Fi more profitable sooner rather than later. Equipping a single plane for Wi-Fi can cost more than $100,000, posing a challenge to airlines.
To improve their prospects, Cravens said the airlines have to offer a broader breadth of services over Wi-Fi, as well as expand deployment to more planes and better advertise their services.
Various experts said airlines could raise revenues by requiring fees for Internet phone calls and video chatting using Wi-Fi, although current airline policies forbid such practices.
Airline passengers are already familiar with U.S. Federal Aviation Administration rules that ban using a cell phone in flight. An Internet phone or video call would send the signal to the plane’s Wi-Fi router and then to a satellite or ground receiver over a band that is designed to avoid interference with the plane’s vital communications.
Still, it’s questionable whether airlines would want to sell services for Internet calls that would disrupt nearby passengers, some trying to sleep, airline officials and analysts said.
Surveys have indicated passengers don’t want the annoyance of voice over Wi-Fi calls. As an American spokeswoman said in 2009, “We don’t see it coming.”