SAN FRANCISCO (06/30/2000) - Thursday's announcement that six major U.S. airlines are forming an online cut-price ticket selling venture was quickly interpreted as a shot across the bow of Priceline.com, the company that enables customers to name their own price for airline tickets and often fly at deep discounts.
Dubbed Hotwire.com, the new project is slated to launch in September, and its backers - United AirLines Inc., American Airlines Inc., Northwest Airlines Inc., Continental Airlines Inc., America West, USAir and the investment firm Texas Pacific Group - are devoting US$75 million to the effort.
Priceline shares dropped 8 percent on the news Thursday, and this obscured an oddity about the Hotwire plan: Five of the six airlines involved (all of which hold minority stakes in the company) are already involved in another major online venture, Orbitz.
Orbitz brings together some 30 airlines and, like Hotwire, it plans to offer competitively priced tickets and is set to launch around the same time. Of the six Hotwire partners, only America West has not joined Orbitz.
Why these airlines would jump into two Web ventures at once - in addition to running their own sites, and in a time of consolidation across much of the Internet economy - is puzzling. The executive team at Orbitz says it expects full-service online travel sites such as Travelocity and Expedia (EXPE) to be its main competition. But given Orbitz's promise to offer tickets as cheap as anywhere else on the Web, it's unclear how it much it differs from Hotwire.
"We're really complementary to Orbitz," contends Hotwire CEO Karl Peterson, insisting that the two will not compete against one another. "We're really enabling people to travel who wouldn't otherwise travel."
Peterson says Hotwire can charge low prices because, like Priceline, it will mask the identity of carriers until after the customer buys a ticket. In addition, Hotwire will target time-insensitive customers, giving the company more flexibility in its ticket offerings. Unlike Priceline, customers will not bid for their tickets.
Neither Priceline nor Orbitz executives returned calls for comment. An Expedia spokeswoman said she was not worried about the threat that Hotwire poses.
Philip Wolf, CEO of PhoCusWright Data, says the deal is "curious," but he points out that airlines are scrambling to regain control of ticket distribution. "At the moment airlines have a lot of cash to play with - to them [this is] a strategic risk worth taking," he says.
However, Hotwire's risk assessment may also be based on other factors. Orbitz lacks a CEO, its launch has been subject to numerous delays, and it is currently the subject of a Department of Justice anti-trust investigation. The DOJ has yet to comment on the matter.