Airbus enters in-flight Internet dogfight

Airlines dogfight for in-flight Internet Rob Brookler, World Airline Entertainment Association

French aircraft maker Airbus announced Thursday that it has acquired a stake in Tenzing, a maker of in-flight Internet access systems, in a move that propels it into an Internet dogfight with competitor Boeing.

Under terms of a deal that closed last month, Airbus bought a 30 percent stake in Seattle-based Tenzing, valuing the private company at $148 million. The agreement makes Tenzing the primary supplier of in-flight Internet services equipment to Airbus.

The news follows a Wednesday announcement by Boeing that its Internet unit, Connexion by Boeing, signed deals with three major U.S. airlines. The deal calls for the airlines to install a similar service in 1,500 aircraft starting in the second half of next year. Tenzing's service already is available.

The Tenzing version gives travelers limited Web surfing ability and access to their e-mail accounts, making it possible for business people to conduct office work while in flight.

"As airlines offer more services on board, you can be more productive, and on some level, that will help the airlines," said airline analyst Brian Harris at Salomon Smith Barney, an investment bank.

Tenzing said it has commitments from three airlines, Virgin Atlantic, Cathy Pacific and Singapore Airlines, which will start to install the service in their fleets this year. The company also expects to announce three additional airline customers at the Paris Air Show next week.

Air Canada also has tested the service in some aircraft and Scandinavian carrier SAS will test the service this year.

"Our goal was to produce a tool that would make life for the frequent business traveler more productive and more fun," Tenzing Chief Executive David Lowe said at a press conference.

Lowe said in an interview that the company expects to have the service running in 50 aircraft by the end of this year, 200 by the end of next year and 500 planes by the end of 2003

Gartner analyst James Lundy says in-flight Internet access could be a boon to users, the businesses they work for and the vendors that provide Internet-based services--assuming that the price is right. see commentary

Tenzing already has about 8,000 customers signed up in North America to use the service on an experimental basis with airlines that are conducting trials.

Travelers need a device such as a laptop computer to hook-up to the Tenzing service. Once connected they can surf limited Web content that Tenzing furnishes for free through deals with about 100 content providers such as Yahoo, The Wall Street Journal and smaller sites.

If customers pay an extra $4.95, they can have access to their e-mail for a 24-hour period, an option that allows them to read only the address of the sender and the subject line. Users then pay about 50 cents per page if they choose to read or send e-mail.

The connection speeds provided by satellites are slow, about 2.4 kbps (kilobits per second) for international flights and 9.6 kbps for U.S. flights. Tenzing expects those speeds to increase and also plans to offer a broadband service. Connexion boasts a minimum speed of 56 kbps.

Stuart Dunleavy, director of global roaming business at Tenzing, said that service users will not directly experience the lag associated with such slow speeds. Travelers will plug into a LAN (local area network) on the plane that can retrieve Web pages and e-mail very fast because the data is stored in an on-board Web server that updates itself constantly.

The only delay that might occur is in waiting for e-mail responses and for Web pages that contain time-sensitive content such as news, stock quotes and sport scores, since the on-board server updates its content roughly every 15 minutes.

Although both companies focus their attention on the business traveler, some travel analysts question if the in-flight Internet service will take off among mainstream consumers.

"Pricing is a huge issue," said senior analyst Henry Harteveldt of Forrester Research, a market research firm. "Some people will try it (as a) novelty, but...it will be the minority of travelers that will use the service."

Hartevedlt added that he does not think that most people will pay more to use the in-flight access in the air than what they pay for the same service in one month at home.

The battle between the two services could heat up more because of the logistical issues the airlines face.

"If I'm an airline, all I want is one system that works on all airplanes because airlines don't want to have to train and maintain two separate systems," said Harteveldt, who said that a standards battle might result in poor Internet service and irate travelers who are already annoyed by air travel.

Such considerations could turn what is now a dogfight between two nascent companies into a full-blown air war as more carriers want such services.