In 2012 I wrote that once bandwidth increases substantially for inflight internet, it would eventually become free (included in ticket price). I predicted that would happen within 10 years.
Three and a half years ago I repeated that prediction. At that point JetBlue already offered it on some aircraft, now it’s across their whole fleet.
Aer Lingus has announced that starting next year coach passengers will receive 20mb of free wifi as well as free drinks.
In an era where everything seems to be unbundled (fee crazy) that seems like a strange thing for me to have said. Sponsorship is one model to fund internet. Southwest, Delta, and Alaska offer free inflight messaging. T-mobile subscribers get an hour of free Gogo internet.
More importantly speeds are improving. Delta has been rolling out robust satellite internet and American is too. You need to price internet because there hasn’t been enough bandwidth to go around so you need to limit its use to those who value it most, otherwise it would become as unusable as it is on an Emirates A380 where it’s mostly been given away free.
However once you have enough bandwidth the costs to provide access are mostly fixed, and the economics of airline fees reverses. Remember that hotels used to charge for internet and now it’s mostly free.
Bundling — like your cable company does — becomes a profit-maximizing strategy.
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.
Bundling makes sense where consumers demand various levels of service, will pay different amounts for each service, and the marginal cost to provide services is low. Once the investment is made to be able to to provide the service, the key is to extract as much total revenue from all of your customers as possible. You can make more by offering a premium product than a stripped down one.
Last year Delta CEO Ed Bastian agreed with me, suggesting that in the long run they won’t be charging extra for inflight internet. Last month he re-iterated that in the long run they’ll do it.
My original prediction said it would happen in 10 years. There’s 4 years left. We’re starting to see it even before I thought and I believe we’ll see it spread more within this timeframe although it’ll take longer to become largely universal.
AA will never give away free internet without a fight. Do you think Doug Parker and the rest of the US Airways management cancer will give away anything? I’m surprised they finally gave into power outlets on most of their AA aircraft.
@VX_Flier
AA goes wherever the market takes them. If UA and DL start giving free internet, you can bet AA will shortly thereafter follow — the same happened when it came to free movies/streaming. JetBlue was smart and invested in satellite internet early on which gave them more bandwidth than their competitors who relied on GoGo’s ground based system. Bandwidth is still the biggest limiting factor at this point and if you open it up to the masses it would just slow to a crawl.
@VX_Flier It will not be free. Dug and the gang will simply bundle it into a fare increase.
Not exactly a “Simple Example”, but I enjoyed the article overall. Thank you
Brilliant idea. #unitedairlines #incentivetofly
The highest usage will be the cabin crew. VPN traffic may be throttled, and voice over wifi smartphone calls may become annoying.
Instead of Google glasses, maybe Google will invent a helmet so you can retreat to a world completely isolated from your immediate surroundings without conversing with anyone around you unless they ring a doorbell button on your helmet. A camera array will give you visual so you wont need to remove your helmet and they wont mind talking to the helmet because that will be the new norm.
If you are the first to get this be careful because one day, when you forget to turn off your doorbell mic, someone will push that button to thank you for the free IFE but the plane is about to land so the monologue is overr and electronics get turned off.
The airlines have made flying in the main so awful, that they will offer a palliative to the masses.
As the Romans did to stay in power: panem et circenses. Bread and circuses. Food and entertainment. But food costs more longer term than mere entertainment of the WiFi internet sort. And so WiFi internet in-flight will be the order of the day.
Caesar’s wife: “Caesar , the masses are mad and word is they may revolt.”
Caesar: “We can give them bread and games, but it will be just games as games are cheaper longer term since games are memorable and the bread forgettable and whet the appetite for more bread.”
Expect a two tier model in the long run. Free but just functional and slow internet for all, and the option to buy up to really useful speeds
@Richard – I’m all for that, if the speeds are useful. Many hotels are doing away with the paid premium tier and only providing the free basic wifi (which is often useless, even at 3 AM when nobody else is on since they limit per user speed to be just enough for texting/email but useless for a steady VPN connection for business, never mind streaming video).
When will businesses understand that free wifi is meaningless if the speeds make it useless?
My buddy Dug and I have already discussed this free internet crap.
We holding our breath that Eddie is just BS’ing Gary.