NEW YORK (CNNfn) - The announcement of a new competitor for Priceline.com's cheap-ticket business on the Internet shook the company's stock Thursday, but Priceline said it wouldn't be much affected by the new venture.|
Hotwire.com, a new Web site offering consumers the chance to buy empty seats on airline flights at a deep discount, will launch in the fall, with UAL Corp. (UAL: Research, Estimates)'s United Airlines, AMR Corp. (AMR: Research, Estimates)'s American Airlines, Northwest Airlines Corp. (NWAC: Research, Estimates), Continental Airlines Inc. (CAL: Research, Estimates), US Airways Group Inc. (U: Research, Estimates), and America West Holding Corp. (AWA: Research, Estimates)'s America West Airlines as partners and investors, according to its chief executive, Karl Peterson. Peterson said Hotwire is still trying to get other airlines involved.
Continental confirmed to CNNfn that it is involved in the new venture. An American Airlines spokesman said only that American is involved in "discussions" about the venture, but would make no other comment. The other airlines referred inquiries to Hotwire.com.
The majority investor in Hotwire, which has a total of $75 million in initial funding, is the privately held Texas Pacific Group, which has also taken ownership interest in Continental, America West and Northwest airlines. Hotwire CEO Peterson is a former partner in Texas Pacific.
The airlines will continue to sell tickets through Priceline (PCLN: Research, Estimates) and another competitor, Orbitz.com, which 25 airlines joined last year.
A scare, but not a threat
Priceline stock stumbled after the news, down 3-11/16, or 9 percent, at 36-1/2 in late afternoon trading. It fell as much as 16 percent at one point Thursday.
PaineWebber analyst Sara Farley maintained a "buy" rating on Priceline, however, saying competition was expected in her financial projections and travel-related revenues were expected to be less of a growth driver than in the past.
Priceline was similarly unimpressed. "This announcement has no impact whatsoever on our revenue guidance to the street, or our profitability targets," Priceline CEO Jay Walker said. Walker said he expected Priceline revenue to exceed $1 billion in 2000 and post a profit in early 2001.
Hotwire will let users pick their destination and days of travel, and will return with the best fare it can find. Users will not get exact flight times and the name of the airline until they buy the ticket.
"Consumers don't have to spend hours on research and check multiple sites," said Karl Peterson, Hotwire's chief executive. The business model differs from Priceline's in that consumers will not be asked to name their own price in a committed offer, Peterson said.
For this reason, Priceline's Walker said Hotwire isn't really a competitor. "Anybody with a published price, we would argue, is not a Priceline competitor," he said. "If you can't name your price, you're not a competitor."
Walker also said Microsoft Corp. (MSFT: Research, Estimates)'s Expedia Inc. (EXPE: Research, Estimates) is a Priceline competitor, but still had no effect on Priceline's profit. Priceline and Expedia are in litigation over alleged patent infringement.
-- from staff and wire reports