Posted by Jesse Braunstein

United Airlines just announced plans to have Wi-Fi broadband Internet on international flights!

Although on the surface, this may not seem like such a tremendous deal, as there are already a bunch of US airlines that offer “In-Flight Wi-Fi”; this announcement is really a big departure from the norm.

In a CNN article titled; “Wi-Fi coming to international flights”, the author specifies something I didn’t know:

“This is the first effort by a U.S. airline to provide Internet on intercontinental flights.”

The other airlines that already have Wi-Fi for plane passengers transmit the broadband, by way of stations on the ground. As long as the plane is in range and over the United States, everything’s quite peachy. But, once the plane gets out over the water, say on a flight to Spain (that sounds nice), you lose the Internet signal.

What United is determined to do is much more risky and cost intensive, but really shows their dedication to delivering a high quality product. They’re going to buy a satellite, launch it into space and have it transmit Wi-Fi to their planes, no matter where in the world they are.

Now while I think this strategy is optimal for the times and forward thinking, as people are becoming increasingly reliant on the Internet and the way it connects us literally day by day, I do think that this move from a business perspective can be a big gamble.

In order to cover the heavy satellite costs, United is going to have to charge a pretty penny (probably in the form of some sort of per hour, or per flight rate), for Wi-Fi access. This may make the service unattractive to many passengers initially.

As I learned in my Microeconomics class last year, the airline industry is akin to an oligopoly, because of the few, very large players that dominantly cater to customers.  My favorite concept about oligopolistic/cartel scenarios, is the clever way they employ ‘tacit collusion’; namely, making moves to ensure high profits for the industry as a whole but without explicit communication with one another (as to avoid government scrutiny).

Here’s an example of how ‘tacit collusion’ here would actually fail, and benefit the customer:

Because United was the only (or the first), airline to make this move, other airlines will see it as a signal to the industry. My hope is that United’s bold Wi-Fi advance will radically increase the consumer demand for their new service. As a result, many customers (especially business people), will specifically go out of their way to fly on United.

As other airlines realize the profits in following suit, they too will launch their own Internet satellites. Eventually, customers will shop the price of airborne Internet, because many airlines will have the same service. At this point, the reticent communication between industry players will break down as they will all want a piece of the profit pie. This will force the industry as a whole to lower its ‘In Flight Wi-Fi’ pricing, eventually competing it down to zero.

The day when we all have Internet while flying, may be closer than we think!

Picture Credit [via,via]

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