Finally, Something Free From Airlines: Internet Service
CHICAGO ( TheStreet) -- Although the airline industry has moved rapidly to a model where it charges fees for nearly every service, it may be headed in the opposite direction in one key area: Internet service.
"Today, there is some mindset that you can charge for Wi-Fi," United (UAL - Get Report) Chief Financial Officer John Rainey said last week at the Bank of America Merrill Lynch investor conference. "I think candidly, longer term, that may not be the way that product is capitalized on."
Rather, Rainey suggested, it may make more sense to have online retailers cut in the airlines on purchases made by passengers.
"If you look at the possibility to have commercial agreements, you have a captive audience for four hours on a flight," he said. "If that person is going and ordering flowers for their wife or getting dinner reservations or ordering something on Amazon.com, there is commercial possibility there as well.
"I would like to think those commercial possibilities are so abundant there would come a day when we would encourage people to get Wi-Fi and not charge them and have that be an impediment," he said. It is logical for carriers to seek to boost revenue from the use of Wi-Fi because installation is extremely costly, said Jay Sorensen, president of IdeaWorks, which consults on ancillary revenues and branding. "Airlines don't add Wi-Fi for pure financial reasons," Sorensen said. "It's become a sought after amenity that can add market share. So it would make sense to use a free model to boost use and to try to snare revenue from new sources." However, Sorensen added, "Generally, I'm not a big fan of the concept that passengers are frothing at the mouth to buy consumer goods on aircraft." Several carriers are already testing the concept of offering passengers free access to shopping portals. They charge for most Internet access beyond those portals. Delta (DAL - Get Report) said recently that it will provide passengers with free access to shop on Amazon (AMZN - Get Report). "Free access to Amazon provides a convenient way to shop online at 30,000 feet for things they want on the ground," said Bob Kupbens, vice president for marketing and digital commerce, in a prepared statement. Delta also provides free access to several other sites including stories from The Wall Street Journal or People magazine. Delta and its regional partners operate about 800 aircraft that are equipped with Wi-Fi, more than any other airline. Delta collects a sales commission from Amazon.
American (AAMRQ.PK) and US Airways (LCC) have similar arrangements. American provides free access to nine sites including StubHub; People magazine; Groupon; Pogo, a site with games, and Gilt, a shipping site. US Airways offers free access to several sites. American said it negotiates financial arrangements separately with each provider. As usual, Southwest (LUV - Get Report) has an alternate model: it charges $5 per passenger for Internet. Southwest intends to have WiFi on all its airplanes by the first half of 2013. Meanwhile, JetBlue (JBLU) plans to begin installing WiFi on its planes late this year: it has not announced its pricing plans. -- Written by Ted Reed in Charlotte, N.C. >To contact the writer of this article, click here: Ted Reed >To follow the writer on Twitter, go to http://twitter.com/tedreednc.
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