Airlines Form New Online Company
SAN FRANCISCO (AP) _ A new online airline ticket service backed by six major carriers plans to sell cheap seats that otherwise might have been left empty.
Beginning this fall, Hotwire.com will try to put more passengers on underbooked flights by offering deep discounts on tickets unlikely to sell at regular prices.
The concept offers a new twist on an idea popularized by Priceline.com, which allows flyers to designate a price that they are willing to pay for a flight.
San Francisco-based Hotwire will differentiate itself from Priceline and Mircosoft’s ticket service, Expedia.com, by selling its seats at fixed prices.
Users of the Hotwire service, expected to be available in September, will simply designate when and where they want to fly. Within hours, Hotwire then will offer to sell an airline ticket at a set price. Unlike Priceline, Hotwire customers will not obligated to buy the ticket.
``We are going to make it super easy for consumers to buy seats at a good price,″ Hotwire CEO Karl Peterson said during a Thursday interview. ``There will be no hassles, no homework and no guesswork involved. We are getting rid of all the clutter.″
Hotwire’s formation addresses a long-time problem for the airline industry. An estimated 3.5 million airline seats aren’t filled each week. Priceline has helped the industry attack the problem, but as popular as the ``name your price″ service has become, it only sells about 100,000 tickets per week.
With about $75 million in funding so far, Hotwire has hired 50 employees since February.
Hotwire’s entrance into the crowded $300 billion travel industry stands out because the company’s investors include a roster of airline heavyweights. United, American, Northwest, Continental, USAir and America West all have stakes in the new online service. The company is controlled by a high-powered investment firm, the Texas Pacific Group.
News of the airline industry’s backing of Hotwire spooked Priceline stockholders, who worried that the new rival might hurt the Norwalk, Conn.-based company’s business.
Priceline’s shares dropped 8 percent, or $3.375, to close at $36.813.
Industry analysts said the stock market’s fears were overblown.
``I really don’t think these two (sites) will be dealing with the same type of customer,″ said Timothy Fogarty, who follows Priceline for Thomas Weisel Partners in New York.
Lauren Levitan, an analyst with Robertson Stephens in San Francisco, said it will take Hotwire a long time to match the strong brand identity of Priceline, popularized by quirky commercials featuring ``Star Trek″ star William Shatner.
Priceline had 5.3 million customers as of March 31. About three-fourths of Priceline’s revenue is generated from airline ticket sales.
Priceline Vice Chairman Jay Walker, who launched the company in 1998, said the company isn’t concerned about Hotwire. ``We are not changing any of our revenue projections, profit projections or customer projections because of this,″ he said. Priceline hopes to be profitable by the end of this year.
Industry analysts warned that the Hotwire concept could backfire. The airline industry could be hurt if ticket buyers decide to delay buying tickets through normal channels in hopes of getting better deals from Hotwire down the line. Hotwire’s business model might not work if consumers simply use it to get a price quote and then go to Priceline or another online service to name a slightly lower price.
This isn’t the first time airlines have banded together to get into the increasingly popular service of selling cheap seats online. About 25 airlines have agreed to sell discount tickets through a service called Orbitz.
The U.S. Justice Department is investigating whether Orbitz is anticompetitive.
Hotwire is confident that it will avoid similar scrutiny. ``Clearly, we have some well-heeled investors from the airline industry behind us, but we are independently governed and managed,″ Peterson said.
Ed Rothschild, a spokesman for the Interactive Travel Services Association in Washington D.C., doesn’t like the sound of the Hotwire alliance.
``There is the potential for the major airlines to cooperate, collude and engage in all sorts of anticompetitive practices,″ he said. ``While this is something that initially that might sound good from a consumer point of view, it could give the airlines to drive up prices in the long run.″