American Airlines Looks Toward Wi-Fi

American Airlines announced a major step today towards equipping its planes with Wi-Fi internet access. The company announced that it has signed a memorandum of understanding with AirCell to offer high-speed broadband wireless Internet onboard some of its aircraft. AirCell is the company that won the auction from the FCC last year to operate airline Internet service over a certain radio spectrum. American will first test wireless Internet on its fleet of 767-200 aircraft, which primarily fly transcontinental routes starting in 2008. The service will be available for a yet-to-be-determined fee in all classes of travel, though some pundits, like my acquaintance Glenn Fleishman, suggest that pricing could be $15 on flights of four or more hours, $10 on flights less than four hours, or $5 an hour on a pay-as-you-go basis.

This is a long way from Connexion, the Boeing service that was introduced on several foreign carriers, such as Lufthansa, All Nippon Airways, Japan Airlines, and Scandinavian Airlines. AirCell is different from a satellite-based system like Connexion, which required much more equipment leading to heavier and more fuel hungry aircraft, as well as up to two weeks to install the equipment on the plane. Given how precious aircraft time is (since widebody aircraft often lease for several hundred thousand dollars a month), that was very costly to the airline. The estimated investment airlines made to install Connexion on their planes was $500,000. Since the system cost so much to install, many passengers had to use the system at a high cost (often between $25 and $30 per flight) in order for the airline to recover its costs.

AirCell claims that its system can be installed on a plane overnight, enabling the aircraft to stay in service, generating revenue for cash-strapped carriers. The AirCell system carries much smaller antennas than Connexion and uses cell towers instead of satellites to link to the Internet. This is a much easier and cheaper way for airlines to deliver Internet access. But what’s really interesting is this. I talked with a representative of the company this afternoon, and he said that interminability shouldn’t be an issue with the system. Even though most flights travel over areas with limited cell coverage (since much of the country, particularly rural areas, lack cell coverage), the system will only need to connect to less than 100 cell towers on the ground for an entire transcontinental flight. This is due to the high altitude of the aircraft. As a result, over virtually every part of the country, customers should be able to obtain Internet access.

The reason so many airlines, including American, Southwest, and JetBlue, are looking to offer some sort of onboard Internet or email access is because business travelers are starting to demand it. With increased pressures on their time, business travelers are striving to be more productive, and airlines are trying to capitalize on that. Since business travelers are the most coveted airline customers, providing most airline profits, airlines are eager to listen to business customers’ needs, especially since the competition to gain business traffic is so fierce. With Southwest now trying to compete seriously for business customers, legacy carriers are trying to up the ante on business amenities.

Adding internet connectivity will do three things for airlines. It will make a given carrier more attractive to business travelers, but it will also make flying in general a slightly more attractive experience. It also offers the possibility for airlines to generate much-needed cash. Airlines can do little to control security, weather, and air traffic control delays, and they haven’t done a good job controlling some other issues such as airport staffing and lost luggage rates. But if business travelers feel that their travel experience will be more productive, then flying will be more attractive and they might feel less pressure to host meetings over the Internet or simply forgo business trips. And while business travelers need to fly on transcontinental routes, internet access will really come in handy for airlines like Southwest that are trying to keep business customers off trains and buses for short distances. Trains and busses are in most cases more comfortable and more convenient than flying, but they aren’t necessarily faster. However, business travelers can be more productive on trains and buses (some bus lines on the East Coast even offer Wi-Fi, and Amtrak offers tables and other areas where business travelers can meet with colleagues.) Airlines hope that adding Wi-Fi will close the productivity gap between air travel and other forms of transport.

Moreover, depending on what the fee structure is, airlines could make a lot of money off of the service, however, it remains to be seen whether customers will be willing to pay upwards of $10 a flight for Internet access when they already have to pay nearly that much for a sandwich. Business customers might be willing to, but for the majority of customers onboard, it might just be another frill that they'll shun.

The question of whether adding Wi-Fi will be an effective customer loyalty tactic and an effective revenue generation tool for airlines is still up in the air (no pun intended), but given the enormous potential it offers business travelers, it could be just what airlines need to keep business travelers if not happy, at least content.