Back in September, I wrote about the proliferation of in-flight Wi-Fi on commercial jets. At that time, I explained how I thought the airlines must be thinking about how to make offering Internet to customers profitable. I suggested a sort of Internet café approach, where airlines could maximize customer demand by customizing the purchase price to consumer need. Of course, they would lose some money on those willing to pay more who end up using less time. But I still think they would benefit most by maximizing users. So far, however, they continue to prefer a flat-rate approach.
Today, another wrinkle emerges on this topic, as the New York Times explains a new strategy by Continental. It's trying a little experiment. The results could shape the future of in-flight Internet and entertainment.
The Times reports:
In mid-December, Continental Airlines made a move that further clouded the picture. Continental, which had lagged competitors in embracing in-flight Wi-Fi, announced that it would install Gogo on its fleet of 21 Boeing 757-300 aircraft early this year.
But at the same time, Continental indicated that it was hedging its bets. Continental has also been installing a live in-flight television system, which is now available on 48 of its later-model 737s and is planned for its 757-300s by the end of the first quarter. Those are the same 757s, incidentally, where Continental has decided to install Gogo Wi-Fi.
Continental says it is experimenting with the market. The television system DirecTV offers 95 channels of live television and eight programmed channels, for about $6 a flight. (It is free in first class.)
The DirecTV system also offers a service -- free to everyone -- called Kiteline, which uses a tiny slice of the broadband spectrum for passengers to send and receive e-mail messages and instant messages. This bare-bones connection does not allow surfing of the Web. But it is free, whereas Gogo's full-broadband service is not.
Continental's question is, Will passengers who already have the option of watching television pay for a full broadband connection, or will they be satisfied with the limits of a free e-mail connection?
In other words, would you rather have DirecTV + e-mail for $6 or full Internet (including e-mail) for $5 or more, depending on the duration of the flight? For shorter flights Internet might be a dollar cheaper, but on longer flights it could be more expensive than DirecTV + e-mail.
In a sense, readers have already answered the question of how much consumers are willing to spend on Wi-Fi. Back when I wrote that post in September, I created a poll asking people how much they'd pay for in-flight Internet. Here are those results:
As you can see, a majority of people (56%) said they'd only be willing to pay between $4 and $6. Perhaps Continental took a poll with similar results to arrive at their minimum of $4.95! Meanwhile, only 5% said they'd pay more than $10. So, if I were an airline, I certainly wouldn't charge more than $10, if I chose to offer a fixed rate plan.
But what does this mean for Continental's current experiment? That I'd be pretty surprised if its fliers didn't choose DirecTV + e-mail more often than Internet, which I take to be more expensive on most longer flights when Wi-Fi entertainment would be more important to jetsetters. If they key is to kill time and keep in touch with people in case anything comes up, then DirecTV + e-mail accomplishes that pretty well, though Wi-Fi would allow more freedom and entertainment options.
Which populations of travelers would choose each of these options? I think that could have a surprising outcome. Intuitively, it might seem like business fliers would be more willing to spend more money on in-flight connectivity, so to get more work done while on the plane. That may be true, but it may not be -- if they can access their e-mail through the DirecTV component, I'm not sure many would care about additional Internet connectivity. Besides, business fliers might not be willing to pay a premium for full Internet access if their travel expense budgets are feeling the squeeze.
Leisure flyers, on the other hand, might want Wi-Fi. They could potentially be more interested to get the most for their money and enjoy Internet news sites, social networking sites and e-mail access -- not to mention access for their iPhones, Droids, Nexus Ones and other smartphones. Additionally, if the Wi-Fi connection has a decent signal, then these fliers could even watch TV or movies on their laptops through services like Hulu or Netflix anyway. Who needs DirecTV?
Ideally, airlines would offer both options. But I'd imagine that would be a lot more expensive than just offering one or the other. So I suspect eventually Continental will drop one, once it figures out which travelers prefer. And since the Wi-Fi poll did so well, let's answer this question too. Vote below!