Internet on the plane doesn’t feel magical anymore, just slow and expensive. That could soon change.
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Ever wonder why, in 2015, Wi-Fi on U.S. airplanes is still terrible, or expensive, or both? Or completely nonexistent, as is the case on one in five domestic flights? Does it have to be like this? Will it always be?
The answers to these questions vary depending on whom you ask and which airline you fly. They involve a deeply entrenched, dated system embedded in the country's three largest airlines — which some have tried, and failed, to claim is an illegal monopoly. And they involve the emergence of partnerships that could subsidize the cost of the more expensive (and faster) satellite broadband systems in place on other carriers, and the race to capture the global market, where only 5% of flights currently have internet access on board.
There are currently two kinds of in-flight Wi-Fi providers: those built on satellite technology, like Global Eagle, ViaSat, and Panasonic, which are only used by a handful of smaller airlines; and Gogo, which uses an air-to-ground system that dominates the market due to long-term contracts signed with American, United, and Delta.
All three of America's biggest carriers are widely expected to renew their contracts, due to the cost of removing the Gogo infrastructure and installing replacements, plus the incremental revenue these carriers make — in Delta's case, it's a 23% cut of Gogo's fees.
“All of [the other aircraft Wi-Fi providers] use satellite, except for Gogo, but Gogo is getting there eventually,” Andrew De Gasperi, an analyst covering Gogo at Macquarie, told BuzzFeed News. “Gogo has extremely long contracts, something like eight years long, that are hard to break — you actually have to show passengers are choosing not to fly with you because your service is horrible. I don' t think they're going to lose service in the U.S. when the contracts expire in 2017.”
One of the perks of being a Gogo customer is it installs the equipment for free or at a subsidized cost, and acts as a 24/7 troubleshooting service for its airline customers. In return, the company picks up most of the revenue from fliers who pay to use the service.
“Gogo controls the pricing and user experience; they also control the risk,” Ashwini Birla, an analyst covering Gogo at Dougherty & Company, told BuzzFeed News. “Aerospace can be a very sticky business for a supplier,” Birla said. “Airlines have so much going on, they usually prefer not to change their service provider. Delta probably is not going to change; they are firmly in bed with each other.”
Gogo has plans to upgrade to a faster satellite-based product in 2016, and Birla expects the costs of the upgrade — expensive new equipment is needed for each plane — could be recouped by users paying more for a high-speed service, offered alongside a slower, basic service that is cheaper than current pricing of $16 a day or $59.95 a month.
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JetBlue is taking a very different approach. The airline's recently announced partnership with Amazon will bring free Wi-Fi to its passengers, and a free broadband streaming service for members of the Amazon Prime subscription plan.
“Internet on the ground started to take off in the mid-'90s and you would go to an Internet café and pay to access the web, and nowadays there isn't much need for internet cafés anymore because it's become a basic service and in some respects, a basic human right,” Jamie Perry, JetBlue's director of product development, told BuzzFeed News.
“In the air, that movement started later and isn't further along down the road. It's a lot more expensive and a lot more work to equip an aircraft with Wi-Fi than it is a café or office or home. There's a lot more cost involved, but the good news is you can deliver a much faster, higher-speed service for people, so you just have to figure out how you cover the additional cost of using that system.”
But that subsidy wasn't going to come from JetBlue's customers. As the airline was developing its satellite onboard Wi-Fi product called “Fly-Fi,” which it launched in December of 2013, Perry said customers, who were accustomed to receiving free Wi-Fi in places like Starbucks and even at the airport, were less and less willing to pay for internet on a plane.
“Prices have been fundamentally set by Starbucks; it conditions people to believe that internet is basically costless and free, or can be covered by the cost of a cup of coffee,” Perry said. “Customers want this thing, they expect it to be free, we have a system that gives them what they want, but it's getting too expensive and people are really not prepared to pay for it. We'd seen this over and over. We had to find a way to cover the cost of this that didn't involve charging customers for access.”
Initially, JetBlue came up with a “freemium” style model, which included free Wi-Fi in a basic package — one that was slower than a higher-quality product — and one that was fast enough to offer customers streaming services. As it turned out, however, JetBlue over-engineered the free “basic” product.
“We were surprised because the basic product allowed you to stream video,” Perry said. “They're not going to pay for the premium product, so we now have all of our users in free product, so we had to find a way to monetize that.”
So JetBlue took its onboard Wi-Fi show on the road, looking for media partners to sponsor Fly-Fi through marketing rights and exclusive content the companies could provide to JetBlue customers during their flights to help subsidize the cost.
They found a newspaper partner in The Wall Street Journal, which gives flyers free access to the WSJ while using JetBlue's Wi-Fi, and a magazine partner in Time Inc. Random House offered a similar service with access to its e-books for Fly-Fi users, and even Fox signed on to be Fly-Fi's TV sponsor. That left just a few areas to procure sponsorship for, the largest of which, was streaming services.
“What we have with Amazon is a real cornerstone partner to be the leader of those partnerships, you can stream,” Perry said. “We went to California and met with all the large tech companies out there to gauge their interest in becoming a cornerstone partner of the Fly-Fi program. Some said we're too big, and others were much more receptive. We took a lot of partners on test flights, and Amazon is our exclusive streaming partner, but I do see us entering into marketing partnerships with folks in different channels.”