In-Flight Internet Coming Soon?

June 6, 2001 -- International air travelers on a few select airlines will be able to surf the Web at 35,000 feet from next year, but questions remain over how eager passengers and carriers will be to pay for sky-high e-mail.

Commercial aircraft giant Boeing Co. expects to announce its first customers for its “Connexion by Boeing” service at the Paris air show later this month.

Tenzing Communications Inc., which offers a cheaper-to-install, more modest technology, already has several customers putting the service on a portion of their fleets.

Tenzing could also name more customers in Paris and Boeing arch-rival Airbus is reportedly set to take a stake in Tenzing as part of a strategy to extend its competition with Boeing to in-flight Internet.

Boeing has projected that the market for in-flight Internet services will reach $45 billion by the end of the decade, with a tenth of that going to Boeing’s Connexion service.

But the first couple of years could be much less lucrative, and airlines are said to be concerned about how revenue will be split with their service provider.

Revenues could initially be “quite small,” said Nikolas Herrmann, a consultant at Roland Berger Strategy Consultants, who has worked with major airlines on other e-commerce offerings.

“I would think it’s not necessarily the income-generator for the airline that some of the service providers would try to make them believe,” he said.

He pointed to in-flight phones, which because of their high rates have drawn only modest interest from passengers since airlines began installing them in seat backs.

Providers maintain that the services will be reasonably priced, with Tenzing saying its service could break down to about 50 U.S. cents an e-mail.

U.S. Airline Interest Tentative

So far, Tenzing’s customers are non-U.S. airlines such as Singapore Airlines, Britain’s Virgin Atlantic Airways and Hong Kong’s Cathay Pacific Airways.

Boeing declined to say whether its initial customers would include a U.S. carrier, and big U.S. airlines told Reuters they were still studying various options. Some in the industry believe U.S. carriers will be slower to adopt the technology.

“A handful of foreign carriers tend to be the trend-setters in the business,” said Alan Pellegrini, Tenzing’s president. “I expect the bigger airlines in the U.S. and even Europe to take a bit more time. That’s just their nature.”

Analysts said U.S. carriers might be inclined to wait to incur the costs associated with installing the new services until competitive pressures demand they move.

Several major U.S. carriers are loyal Boeing customers, but face a slowdown in passenger traffic that could make them reluctant, in the near-term, to fit their planes with the Boeing system, which involves installing a new high-capacity network.

The Tenzing system is technologically less ambitious than Boeing’s, using an on-board server computer to manage data sent over an aircraft’s limited telecommunications network.

The company plans to offer an upgrade later to a high-speed network.

Pellegrini said that while legitimate demand for the service was taking shape, there was probably only room for a couple of companies to make money providing the services.

The failure to sign up customers has already led Rockwell International Corp. and News Corp., which intended to jointly offer in-flight Web service, to drop their plans.

Speed a Factor

Singapore Airlines expects to outfit its entire fleet of U.S.-bound planes with the Tenzing service within 14 months.

Surveys showed Singapore’s customers wanted immediate access to in-flight e-mail and Web browsing.

“Timing was really critical to us,” said James Boyd, a U.S. spokesman for the airline.

U.S. airlines said they were evaluating various systems.

“We continue to evaluate all possible offerings,” said a spokesman for Continental, which buys only Boeing planes. “We have not made any decisions at this point whether to proceed with any of them.”

Other airlines echoed Continental. “We don’t have any specific company in mind at the moment or any specific system,” American Airlines spokesman Gus Whitcomb said.

UAL Corp.’s United Airlines, Delta Air Lines Inc. and Northwest Airlines Corp. all said they are still looking at options.

Southwest Airlines Co., which flies nothing but Boeing 737s, is in no rush to add costs to its low-fare model.

But airlines tend to follow each other, and if one U.S. airline installs the service, the rest won’t be far behind, industry experts said.

“Once it’s rolled out, everybody will have it pretty soon,” Herrmann said. “You could almost assume they’re all trying to avoid this cost of doing business as long as they can.”