With monster fuel bills and growing customer unrest over higher fares and
baggage fee hikes, airlines are desperately seeking value-added services that
passengers desire enough to pay for. Enter in-flight wireless Internet access,
or Wi-Fi. The idea is airline passengers particularly the industry's highly
coveted business travelers want to be just as connected at 35,000 feet as they
are on the ground. There's been rising growth of in-flight Wi-Fi over the past
year, both in passenger usage rates and the percentage of airline fleets where
wireless broadband service is available, according to market research firm
In-Stat. In fact, in-flight Wi-Fi revenues are forecast to exceed $1.5 billion
by 2015. That's great news for airlines like Delta (NYSE: DAL ), American
(NYSE: AMR ), US Airways (NYSE: LCC ), Southwest (NYSE: LUV ), JetBlue (NASDAQ:
JBLU ) and United Continental (NYSE: UAL ), all of which have been pressured by
razor-thin margins. While airline stocks have bounced in recent weeks, they
still are down on the year a good measure being the Guggenheim Airline ETF
(NYSE: FAA ), which is down more than 36%. Since Google (NASDAQ: GOOG )
subsidized Wi-Fi access onboard select Delta, Air Tran (now part of Southwest)
and Virgin America flights last holiday season, the share of passengers using
Wi-Fi has grown from 4% to 7%. Smartphones and tablets are becoming
passengers' devices of choice. In-flight providers also are rolling out new
passenger services like streaming video that could further boost revenue for the
industry. Most airlines that offer Wi-Fi price it at $11 to $49 for computer
devices and $4.95 to $19.95 for mobile devices, according to the Airport Wi-Fi
Guide. Southwest, however, has been promoting the service at a $5 introductory
price. But there's a battle brewing among in-flight Wi-Fi vendors. United
Continental has tapped Panasonic 's (NYSE: PC ) Avionics unit to install
satellite-based Wi-Fi on more than 300 aircraft in its domestic and
international fleets. Continental had not offered wireless Internet before the
merger, but United had used privately held Gogo LLC's Gogo air-to-ground
system. Gogo, which earlier this year raised $35 million in preparation for an
IPO , publicly criticized UAL last week for switching to Panasonic.
"United's announcement that they've selected Panasonic Avionics
Corporation is a disappointment," the company said on its website. "As the
leader in the domestic marketplace, with more than 1,200 commercial aircraft
installed, Gogo is the here and now, and we believe our current Air to Ground
service is superior in many ways to Ku satellite technologies." The
air-to-ground vs. satellite debate is not likely to end anytime soon. AirTran,
which uses Gogo, was the first U.S. airline to roll out Wi-Fi fleet-wide.
Southwest, which is completing its merger with AirTran, uses satellite-based
Wi-Fi from Row 44. Gogo still provides in-flight wireless service to American,
Delta, US Airways and Virgin America, while JetBlue is partnering with ViaSat to
deploy a broadband satellite-based system on its fleet beginning in 2012. Bottom
Line: If there's any reasonable way to enhance ancillary revenue particularly
without enraging passengers airlines are likely to give it a go. Consider that
even Amtrak is extending Wi-Fi availability to a dozen new markets . And if
Wi-Fi becomes another thing about a train that's magic, it might shift the
competitive playing field just enough to make in-flight Wi-Fi a necessity
instead of a novelty. As of this writing, Susan J. Aluise did not own a position
in any of the aforementioned stocks.
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