For seven years I’ve been saying that inflight internet will eventually be free. Since I started making that prediction JetBlue introduced free inflight internet and Aer Lingus has announced usage-capped free wifi. Southwest, Delta and Alaska now offer free inflight messaging.
My 2012 prediction was that inflight wifi would be free in 10 years (so by 2022). Delta CEO Ed Bastian says they’ll do it in a year or two so by 2021. (HT: Rene’s Points).
One initiative is rolling out high-speed Wi-Fi on its aircraft. A majority of Delta planes now have it, but it costs $16 a day for North American travel, or $599.99 for an annual pass. “Our goal is to make Wi-Fi free with high-speed quality,” Bastian said. “It will take another year or two to make that happen.”
The President of American Airlines says his airline won’t lead the way with free wifi. He says “we will be charging for wifi” though of course that could change if they’re forced to give it away by a competitor like Delta doing so (“we’ll be conscious of the marketplace and make sure we do the right thing”).
His argument is that “satellite wifi serice, it’s not cheap.” It “would be an expenditure of hundreds of millions of dollars” but the argument I’ve been laying out for years is that he’s misunderstanding the economics of bundlings services where the marginal cost of providing something to an additional passenger is zero or near-zero.
- When bandwidth was extremely limited, inflight wifi was a scarce resource to be rationed
- But with high speed satellite internet bandwidth is no longer a constraint
- Different people value having internet access differently. So it makes sense to bundle together with other items, the way cable companies sell baskets of channels.
Here’s a simple example.
John values Disney at $100 a year and FoxNews at $10 a year; Sally has the reverse valuations. Without bundling, the cable company will offer each channel for about $99, and sell a channel to each consumer, reaping $198 in revenue (N.B.: I am assuming that the cable company has a good idea of demand in general, although it cannot identify which consumer is willing to pay how much for what.)
In lieu of this set up, sell the bundle for $109 to each consumer, reaping a greater revenue of $218. The company makes greater profit.
More importantly, aggregate welfare is higher. In this case each consumer receives two channels instead of one.
Offering inflight internet without extra charge is not something that costs hundreds of millions to give away free, it’s something that you make more money selling as part of a bundle, in this case bundled with the airline ticket.
Once satellite internet is rolled out across a fleet the biggest drawback to bundling internet with airfare is the 7.5% federal excise tax on domestic aifares which doesn’t apply to fees earned separately from the price of a ticket.
My original prediction said it would happen in 10 years. There’s 3 years left. We’re starting to see it even before I thought and I believe we’ll see it spread more within this time frame and Delta’s CEO is planning to prove me right.
Meanwhile UA want offensive amounts of money for their substandard WiFi product. WiFi access can be a decider when selecting a carrier.
Complimentary Wi-fi will help me make the decision to fly Delta Airlines more often.
I can’t believe Sally values Fox News at $100/year.
IT’S ABOUT TIME DELTA! Now, PLEASE make sure that your wi-fi capacity is WAY BEYOND SUFFICIENT for each passenger who will be using 2-3 devices to access websites, stream video, send emails, etc. If you don’t pro-actively plan ahead for this, you will frustrate those of us who already access paid Wi-Fi! BTW…What perk is AmEx going to replace the 10 “free” Wi-fi passes with (through their Business Platinum card)? Price increase from AmEx on the Platinum Business Card in 2019 and the loss of this AmEx “perk” in 2020-2021?
Well, if it’s free then I guess we can’t bitch and moan when the service sucks.
“Offering inflight internet without extra charge is not something that costs hundreds of millions to give away free, it’s something that you make more money selling as part of a bundle, in this case bundled with the airline ticket.”
Just that you forgot the airlines are UNBUNDLING services, not bundling them, over the past years.
Good, one more reason to dump my Plat AMEX! This decision is really getting easy!
@John – exactly the reason to provide a freebie service for the sake of differentiation.
@Levy Flight
I usually just pay for an hour, batch up a bunch of emails, open websites on my browser before boarding, get some writing done, then login and send everything at once. Not perfect but cost effective.
Also Gary UA has free messaging too, maybe not 100% but I’d say about 80%+ of flights, maybe they just don’t advertise it.
How it isn’t already free for premium cabins is beyond me.
You speak positively of the economics of the of bundlings services where the marginal cost of providing something to an additional passenger is zero or near-zero.
In the US only Southwest understands this and does not charge for bags in the hold, reaping the benefits of fast turnarounds and less stressful experience for passengers, both of which directly drive their consistently higher profitability. Airlines who have bag fees have the same number of baggage handlers working a flights as those who don’t; there’s hardly a reduction in costs.
So it’s not free then. It’s an added fee, like baggage fees.
I bet it will be tiered – throttled access for free – pay a fee for more bandwidth.