Gogo is the largest U.S. provider of inflight Wi-Fi, having raised $187 million selling shares at $17 each on Friday. The price has since fallen about 15 percent. The problem is inflight Wi-Fi is expensive and most travelers won’t use it. Bloomberg Businessweek reports.
The company charges $14 for a daily pass, $34 monthly for a specific airline, and $42 for a monthly pass on any airline with its equipment. The service, which is optimized for altitudes above 10,000 feet, is pricier if you buy it onboard.
But people have an expectation (and it's grown in the past few years) that Wi-Fi should be free. After all, many airports offer it.
Only about 6 percent of fliers on Gogo-enabled flights used the service in the first quarter, the company says. So it raised its prices, looking for profit from a smaller base of business travelers who can pass that cost along to their employers. Surfing the Web at 38,000 feet is now a premium product.
The price increase worked, raising 2012 revenue to $233.5 million from $160.2 million in 2011.Still, the company has never had a profitable quarter; its average revenue per user was $9.74 last year.
Gogo stresses that inflight web connectivity is in its infancy. Fewer than a third of North American commercial planes are connected -- and only 12 percent globally.
“To some degree, there’s an insatiable demand among people for connectivity, and particularly the business traveler who wants to get some work done while they’re flying, and do their e-mails,” Gogo’s Michael Small says. Road warriors are increasingly feeling the pressure to keep working.
Additionally, the Federal Aviation Administration is expected to. It’ll be interesting to see if passengers will flock to sign up.
But part of the pricing Gogo sets is designed to accommodate current technologies, which don’t allow hundreds of people on a plane to all connect wirelessly because of bandwidth constraints. There are also abundant complaints of slow service on the company’s network of 176 cell towers.
Image: rafaneves via Flickr
This post was originally published on Smartplanet.com