Delta CEO Ed Bastian is looking to make high-speed speed wi-fi internet free within two years. That’s a smart move.
Speaking to Barron’s, Bastian stated:
One initiative is rolling out high-speed Wi-Fi on its aircraft. A majority of Delta planes now have it, but it costs $16 a day for North American travel, or $599.99 for an annual pass. “Our goal is to make Wi-Fi free with high-speed quality. It will take another year or two to make that happen.
Gary Leff, of View from the Wing, explains why this makes sense:
Offering inflight internet without extra charge is not something that costs hundreds of millions to give away free, it’s something that you make more money selling as part of a bundle, in this case bundled with the airline ticket.
He uses a cable TV analogy, arguing that bundling increases revenue…and aggregate welfare.
Thus, the question is can Delta charge more for airline tickets if it offers free high-speed internet as part of the package?
I must admit, I’m skeptical. The good news is that with the new generation of high-speed internet onboard, bandwidth is no longer a primary concern. Thus, with the supply issue resolved, there is no longer rationing driven by demand for a scarce resource.
But most travelers seem very happy to forgo any sort of comfort to save a few bucks on airfare. How else has Spirit done so remarkably well?
I think where Delta will win is not with the occasional price-sensitive flyers who will suddenly choose Delta because of free internet onboard. Instead, it will be from road warriors on the margin who have some say in their flight choices. I call these men and women “marginal” travelers because they are in a position to choose schedule over loyalty and must be incentivized to stick to one carrier.
Free high-speed internet may do exactly that. Speaking for myself, I would be far less likely to deviate from United if it offered consistent and free high-speed internet (I spend several hundred dollars per year on in-flight internet). There might well have been no Alaska/American trip last weekend, where the internet failed on both flights.
Delta may see a short-term loss in ancillary revenue if it makes onboard wi-fi free, but it will reap the rewards of a happier and more loyal frequent flyer base. This will drive even more revenue than from selling wi-fi and therefore this move strikes me as a smart one.
(H/T: Rene’s Points)