Ticket auctions on the Internet may not be new, but the latest web offering is stirring up more than a little controversy within the US airline industry. The problem centres not so much on what is being offered - basically an Internet service that allows the public to bid for an airline ticket. The alarm is over who the service is being offered by - an independent on-line marketing company which airlines fear could muscle in on their discount sales.
Although Priceline.com of Stamford, Connecticut, appears to be well received by the public, it has largely been dealt the cold shoulder by the US majors. Jay Walker, the company's founder and vice-chairman, says that 18 major US and international airlines are giving Priceline seats to sell from their inventory, although he carefully declines to identify them.
Eight of the 10 US majors claim they are definitely not included on the list, while America West and TWA decline to comment. But industry officials following the on-line service confirm that these two carriers are working with the company.
Priceline, which has been selling discounted airline seats since April, has a straightforward pitch. Prospective travellers fill out a ticket request form on the company's website (www.priceline.com). That state where and when they want to go, and how much they are willing to pay. Once a bid is submitted, Priceline sorts through the airline seats at its disposal. Travellers are notified within 24 hours whether their bid has been accepted; if a bid is too low, it will be rejected.
Travellers must give the company their credit card information when they submit a bid. If their bid is accepted, their ticket is automatically issued; if rejected, travellers can submit additional bids using different airports or different dates. Tickets are nonrefundable, nonexchangable and nonendorsable; travellers are also not eligible for frequent flier miles. There are a number of additional restrictions that potentially make the service less attractive to prospective customers. Travellers must be willing to leave any time between 6am and 10pm if they are flying domestically, or any time if flying overseas.
Flights can be nonstop, or may require travellers to make one stop or a connection en route to their destination. And travellers have no say over which airline they take; they must accept whatever ticket is offered if it meets their bid price.
There is no charge to travellers for the service and Walker says the company has found that travellers are submitting pretty reasonable bids, so that they are not overpaying for their seats.
Besides offering seats on the 18 airlines directly signed up to the service, Priceline, which is a licensed travel agency, has access to the Worldspan computerised reservations system (CRS) and its inventory. The company sells seats obtained from the CRS and also from ticket consolidators. Walker says these seats represent 2% of sales. He adds that Priceline has sold over 60,000 tickets since its launch, but declines to quantify the sales in dollars. It is believed, however, that the company clocked up receipts of $10 million for some 35,000 tickets in the first three months. Walker says the average ticket price is $300 and that 10-15% of sales are for higher priced international tickets. These generate 20% of total revenues.
Mixed reviewsDespite hefty advertising expenditures - Priceline placed some $20 million worth of advertising in the US media in its first quarter and will aggressively advertise again this autumn - the company has received bad press. There have been gripes from travellers who have been unable to get seats on routes they want to travel - often secondary or tertiary US domestic routes not served by America West or TWA - and also from those who say they find they system unresponsive.
US carriers have a more fundamental objection, fearing a loss of control over pricing if they participate in the scheme. Other observers point out that in a booming market, airlines simply do not need additional help selling seats. Should traffic weaken, however, such on-line auctions by a third party might find more supporters, suggests Steve Cossette, vice-president of distribution planning for Continental. "With weaker economic times and excess capacity, Priceline could be the beneficiary," he admits.
But other major carriers are not so sure. "Their product is geared to a market that is not typically our market. We want to be business travel-focused," says one official. "Priceline seems to help struggling carriers disproportionately more than it could help us."
Walker downplays the lack of support by US majors, saying he is "not surprised" it is taking time for the airlines to analyse what the company is doing. But ultimately, the airlines may be forced to take note. The company has recently received a patent from the US Government for what it describes as the "world's first buyer-driven e-commerce system", and it has plans to expand beyond the airline sector. Since July, it has been selling cars in the New York market and will soon offer hotel rooms, rental cars, home financing and credit cards the same way. Walker says he eventually expects travel-related business to grow to between one-quarter and one-third of Priceline's total revenues. He is talking to overseas partners and plans to broaden services beyond the US next year.
James McQuivey, an analyst with Forrester Research in Cambridge, Massachusetts, believes that for Priceline to win over additional US airlines, it must first convince them it can generate incremental sales. But McQuivey is starting to believe that a few more airlines will "cave-in". If consumers start to feel positive about the Priceline brand and it becomes a channel airlines cannot afford not to participate in, they will be left with no choice, he points out. But he cautions: "If major airlines refuse to play because they want more control over distribution of their product, they can stop Priceline's business."
Source: Airline Business
