Airline-backed challenger to Priceline launches ticketing Web site

A new online discount-ticketing venture opened its Web site for business yesterday, giving struggling Inc. a direct competitor with financial backing from six of the largest U.S. airlines.

Funded by UAL Corp.'s United Air Lines Inc., AMR Corp.'s American Airlines Inc., Continental Airlines Inc., Northwest Airlines Inc., U.S. Airways Group Inc. and America West Airlines Inc., the Hotwire venture plans to auction off vacant airline seats to last-minute and price-fixated travelers. Norwalk, Conn.-based Priceline was the first entrant in that market, but it has been beset by a variety of problems in the past two months (see story).

For example, Priceline found itself kicked out of the Better Business Bureau of Connecticut for a failure to respond to customer complaints. The company also warned that its airline ticket sales fell short of expectations in the third quarter (see story), and an affiliate that handled Priceline's name-your-price service for gasoline and groceries said it plans to go out of business by year's end.

Another blow was dealt on Monday, when Atlanta-based Delta Air Lines Inc. -- one of Priceline's earliest investors -- announced plans to sell off its remaining holdings in the company. Delta officials declined to comment on the reasons for the move.

But Henry Harteveldt, an analyst at Forrester Research Inc. in Cambridge, Mass., said he thinks the sell-off is a prelude to Delta taking an equity position in San Francisco-based Hotwire. "Delta's not going to give United and American any kind of competitive advantage," Harteveldt said. "Priceline was an interesting experiment for [Delta], but the airlines are clearly getting behind Hotwire."

Hotwire is the second ticketing venture to emerge with backing from the major U.S. airlines, although its Web site is the first of the two to become operational. The other ticketing venture, Chicago-based Orbitz, recently delayed the planned launch of its Web site until next spring (see story).

There also are big differences in the organizational structures of Orbitz and Hotwire. Orbitz is jointly owned by the five largest U.S. airlines. Hotwire, which detailed its business plans last summer (see story), was founded by the Texas Pacific Group, an investment and management company based in Fort Worth, Texas. The airlines that are investing in Hotwire get nonvoting ownership shares and won't have seats on the company's board of directors, according to Hotwire executives.

Hotwire CEO Karl Peterson wouldn't comment specifically on the likelihood that Delta will sign on as an investor in the new venture. But Delta "clearly fits the criteria we have for [participants]," he said. "We would be excited about having Delta as a partner."

Unlike the way Priceline initially operated, Peterson said, Hotwire doesn't plan to sell any airline tickets at prices below the actual cost of the flights. He also pledged to make it clear to users of the Hotwire site exactly what they will be charged for each transaction -- an effort to avoid the kind of complaints Priceline has received from customers who said they were unaware of fees tacked on to purchases until they received their bills.

Given Hotwire's airline backing, Harteveldt said the new venture should be able to provide enough cut-rate tickets to satisfy discount-hungry travelers. The real challenge for Hotwire is to expand beyond airplane tickets into hotel reservations and other forms of travel booking without overextending itself, he added.

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