October 27, 2000

Airline ticket discounter Hotwire takes off

SAN FRANCISCO (AP) -- An Internet startup backed by six major airlines launched a cheap-seat service Tuesday that promises to undercut the prices of other online discounters who helped put the concept on the map.

San Francisco-based Hotwire.com believes it will be able to beat the airline ticket prices of other popular online services such as Priceline.com and Expedia.com by tapping into a vast reservoir of unsold seats. An estimated 3.5 million airline seats are unoccupied each week.

With Hotwire, the airlines hope to generate some revenue from those previously empty seats without diminishing the sales of their full-fare tickets.

Six airlines that contributed part of Hotwire's venture capital of $75 million are also supplying the service with an unspecified number of hard-to-sell seats on hundreds of domestic flights.

The airline industry's two biggest carriers, American Airlines and United Air Lines, are backing Hotwire in addition to Northwest Airlines, Continental Airlines, US Airways and America West Airlines. Hotwire said it expects to persuade other airlines to offer their unsold seats on the service in the months ahead.

By launching its site Tuesday, Hotwire beat another online ticketing service called Orbitz that also has been backed by a group of 25 airlines. That site, which includes some of the same investors, also is promising to deliver low fares.

After studying the market, Consumers Union recently asked federal regulators to investigate whether some online airline ticketing services favor certain carriers based on their financial relationships with the Web sites. Consumers Union hasn't studied Hotwire nor Priceline yet.

Hotwire CEO Karl Peterson said the company's airline investors have no say in the company's day-to-day operations. He said the service also has adopted a firewall to prevent the airlines from seeing how many seats each carrier is contributing to Hotwire's inventory.

Thomas Fogarty, an industry analyst with Thom Weisel Partners in San Francisco, doubts Hotwire will produce the same kind of consumer buzz that Priceline.com and other online travel services did when they hit the scene a few years ago.

"This has become a bit of old hat for consumers," he said. "People are much more used to the Internet now. They're a bit more jaded."

Unlike Priceline.com, Hotwire will sell its seats at a fixed price and prospective travelers will be under no obligation to purchase the seats offered to them.

To use the service, Hotwire visitors list their travel destinations and then receive a discount price quote. The customers can't pick a specific airline or flight.

"We are going to have the best prices anywhere, day in and day out," Peterson said.

The size of Hotwire's discounts is expected to vary widely, depending on the destination. The more popular the flight, the smaller the discount is likely to be. Peterson said in some cases travelers who wait until the day before a flight to buy a ticket might save up to 90 percent on the ticket if seats are available.

Hotwire is entering the crowded field of online airline ticket discounters during a turbulent time for the best known of the lot, Priceline.com. The name-your-price service popularized by the off-kilter commercials of actor William Shatner recently closed an affiliated discount gas and grocery operation, and has been battered in the stock market because the business remains unprofitable.

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