One issue passengers are faced with when flying is what to do during a flight. Some bring books or magazines, iPads and iPhones while others just simply sit there and look around. Southwest Airlines (NYSE:LUV) has tested and found that in-flight TV and wi-fi service are in high demand while flying and passengers don’t sweat paying extra for these services. In response, Southwest plans to roll these services out to around 20 planes by July and plans to offer this service to its entire fleet by 2013 based on customer feedback.  This move makes sense given how popular this service has become for other airlines offering TV and wi-fi service.
The airline has launched in-flight live TV service in partnership with Row 44 covering seven news and sports channels namely, NBC Sports, MLB live games from MLB.com, NFL Network, CNBC, MSNBC, Fox News and Fox Business News, available for $3 to $8 throughout a flight. The service is provided through satellite WiFi and can be accessed by passengers using personal WiFi enabled devices such as laptops, tablets or smart phones. It has been launched on five of its aircraft with plans to expand to 20 by mid-July. Based on the results of customer feedback and the performance of Live TV alongside internet usage on WiFi, the airline will expand the service to all its WiFi enabled planes, 250 at present, with plans to enable WiFi on the remaining Boeing 737 in its entire fleet by mid-2013.
The in-flight live TV service is part of the ‘Freight, Service Fee and Other revenue’ division, which constitutes nearly 30% of the Trefis stock price estimate for Southwest. We currently have a Trefis price estimate of $12.50 for Southwest, nearly 35% above its current market price.
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In-flight live TV creates advantages for Southwest
In-flight live TV service creates primarily two advantages for Southwest. First, it creates a new revenue stream. And second, it enhances the airline’s competitive position as some of its competitors such as JetBlue (NYSE:JBLU) and United Continental (NYSE:UAL) are already offering in-flight live TV service to their passengers.
The revenue from WiFi based in-flight live TV is being generated at very little incremental cost to the airline as it is already providing WiFi on most of its aircraft. Thus, if the service is received well by passengers, we anticipate remaining airlines to adopt the proposition as well.
Also, the chief difference in the in-flight live TV service being offered by Southwest and other airlines such as JetBlue is that, in case of Southwest the live TV is accessed by a passenger on his or her personal device and not a device installed onboard. This avoids one-time device purchase cost and recurring device-related maintenance costs for the airline.
However, these advantages shall accrue only if the viewing experience of the live TV alongside internet usage on WiFi is good, and there are significant number of passengers such as myself who otherwise get bored.Notes:
- Southwest Airlines Previews Live TV Inflight On Five Aircraft, June 28th 2012, www.swamedia.com [↩]