Six major airline companies are reportedly banding together to challenge name-your-price pioneer Priceline.com for dominance in the discount air travel marketplace.
The participating airline companies are: United Airlines, American Airlines, Northwest Airlines Corp., Continental Airlines, Inc., U.S. Airways Group, Inc. and America West Airlines, according to a report published Thursday in the Wall Street Journal.
The San Francisco, California-based site, to be called Hotwire.com, already has a staff of 50 employees and initial funding of $75 million (US$) from investors. The majority investor is Texas Pacific Group, a private investment company that is not known for investing in startups.
Long Time Coming
Although five of the airline companies have not confirmed their participation, American Airlines validated the report by acknowledging its involvement in the new venture.
The six airline companies have reportedly been planning the site for more than a year, operating under the working name of Project Purple Demon. A fall launch is expected.
The new site will not ask consumers to name a price, but instead will enable them to select a discount fare based on their planned route. However, the site will model itself after Priceline.com by concealing the name of the airline company, the routing, and time of the flights until the consumer commits to the purchase of the ticket.
While competition in the sector is fierce, Hotwire.com is bolstered by a number of apparent advantages. First, while many startups have the disadvantage of using a new business model and other unknown factors, all six of the participating airline companies in Hotwire.com have already sold their tickets through Priceline.com for some time now.
Second, while Priceline’s business incurs ongoing expenses due to rapid expansion, Hotwire.com will essentially be conducting business as usual for the airline companies, albeit with a new twist.
Additionally, Cambridge, Massachusetts-based research firm Forrester Research estimates that more than $29 billion in travel services will be sold via the Internet by 2003, nearly four times last year’s sales. Industry analysts have observed that consumers are becoming increasingly comfortable with — as well as dependent on — the Internet for travel purchases.
Priceline’s model, although not yet profitable, derives most of its revenue from the sale of airline tickets.
Hotwire CEO Karl Peterson said, “We are committed to being an open model,” leaving open the possibility that other airlines could join the venture.
However, while the airline companies forge ahead with online ticketing, travel agents are likely to object to the new site on the same grounds they are currently fighting another planned ticketing site, Orbitz.
Orbitz, known commonly as “T2” or “Travelocity Terminator,” is the air travel Web site being planned by a consortium of 30 airline companies. The proposed site is currently under investigation by the U.S. Department of Justice (DOJ) for possible anti-competitive practices, despite having not yet launched.
Travel agent industry trade groups believe that their members’ businesses are threatened by the mega-site, and have encouraged the federal investigation.
For its part, Priceline.com continues to grow at breakneck speed. The company has said it expects revenues this year to exceed $1 billion, and projects profitability in the first half of 2001.
Just Wednesday, the company announced an aggressive move to expand into Europe.