FRAMINGHAM (07/07/2000) - A new competitor plans to join the online air wars this September, looking to use the Internet to sell seats on underbooked flights at sizable discounts. The online effort, Hotwire.com, boasts six major airlines as investors and plans to mimic the buyer-driven pricing model made popular by Priceline.com Inc.
Unlike Priceline, however, San Francisco-based Hotwire will allow consumers to window-shop for tickets offered at fixed prices that they can either accept or reject, company officials said. Priceline requires customers to buy a ticket if the service finds one within the pricing and travel parameters they have entered into its system.
Hotwire was founded by the Texas Pacific Group, a Fort Worth, Texas, investment company headed by former Continental Airlines Inc. executive David Bonderman.
United Air Lines Inc., Continental, American Airlines Inc., Northwest Airlines Inc., US Airways Group Inc. and America West Airlines Inc. have joined in as investors, according to Hotwire officials.
But Gregg Brockway, Hotwire's head of corporate development, said the airlines will hold only nonvoting shares. In addition, he said, the airlines won't have seats on the company's board of directors.
Whether the limited role the airlines play in Hotwire's business will be enough to avoid federal scrutiny remains to be seen, analysts said.
Orbitz, another airline-funded venture that plans to launch a more mainstream online ticketing Web site in the next few months, is being investigated for possible antitrust infractions by the Department of Justice and the Senate Commerce Committee. But unlike with Hotwire, the nation's five biggest airlines are the controlling partners in Orbitz.
Hotwire will let different airlines bid for customers through blind auctions, and industry watchers said it has picked what should be a ripe market space.
"It makes sense for the airlines to join in [and try to directly sell unused seats]," said Jeffrey Osborn, an independent airline consultant in Peachtree City, Georgia. "These are their seats, and they must be saying, Why should we have Priceline do for us what we can do for ourselves?' "According to PhoCusWright Inc., an online travel research firm in Sherman, Connecticut, Priceline grossed $350 million in airline bookings via the Internet last year, giving it 10% of the total online ticketing market. But PhoCusWright analyst Lorraine Sileo said she thinks Hotwire will force Priceline to revamp the way it does business.
"Hotwire's taking the gambling element out of it [for travelers]," Sileo said.
"You have nothing to lose if you seek a fare." But the online travel market should grow large enough to support both companies, she added.
While Hotwire will initially aim at leisure travelers with flexible schedules, it also could influence the business community - but not in a way that will make companies happy. Unlike the airlines, business travelers enjoy sparsely populated flights, said Kevin Mitchell, chairman of the Lafayette Hill, Pennsylvania-based Business Travel Coalition. The group lobbies airlines and other travel-industry participants on issues that affect business travelers.
"It's the introduction of yet another channel to an already saturated customer service model," Mitchell said. "Now you're going to have that many more people on your flight and less space."