137-You Mean I Have to Pay for This?

Those of us who fly a lot have noticed how few people have a meal on an airplane anymore. In flight food was attractive when we got it for free, much less so when we have to pay for it.

The WiFi industry is learning a similar lesson. A couple of WiFi suppliers to the airline industry are trying to figure out how to charge for their services. (The WiFi suppliers control the pricing so that the airlines can not give it away, as they have tended to do in the past with other benefits…though that trend certainly has ended.) The WiFi suppliers have found that when the service is free, many customers use it. But when they charge for the service, even at the low price of $1.00, usage drops drastically off.

The companies are trying price schemes that are tied to the length of the trip. One plan charges $12.95 for the service when the flight lasts longer than three hours and $9.95 for flights from ninety minutes to three hours. If the flight is shorter than ninety minutes, the price is $5.95.

The WiFi sellers need about 10% of travelers to pay for internet access in order for the service to be profitable. That will be difficult. A few flights have seen usage in the 12% to 15% range, but they tend to be on longer flights. A large percentage of U.S. domestic flights last less than two hours.

The WiFi suppliers, though, are coming up with a different approach to pricing that is much more likely to succeed. One approach will be to sell packages of service. A business traveler might buy a package of five flights for a fixed price. Once the price has been paid and is out of the customer’s mind, it is more likely that the service will appear attractive while the traveler is on the airplane. In addition, it should be much cheaper to sell a package of five, ten or fifteen flights than it is to sell one unit of service on each flight. In another approach, the WiFi companies are planning to negotiate directly with companies to sell their services in bulk to the companies for use by their employees. This approach has even better cost savings than the package sales. It is a much more efficient way to go. Both of these approaches change the price by altering the basis of the charge for a unit of sale.

Posted 10/1/09

THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.