Six major airlines are joining forces with a new online service to offer passengers cheap tickets on seats that would normally go unsold.
Beginning this fall, Hotwire.com will begin offering deep discounts on seats on the airlines' underbooked flights.
"We are going to make it super easy for consumers to buy seats at a good price," Hotwire CEO Karl Peterson said during a Thursday interview. "There will be no hassles, no homework and no guesswork involved. We are getting rid of all the clutter."
The company's entrance into the $300 billion travel industry stands out because of the roster of airline heavyweights behind it: United, American, Northwest, Continental, USAir and America West all have a stake in the company. The company is controlled by the investment firm Texas Pacific Group.
The concept is a new twist on an idea popularized by Priceline.com, which allows flyers to designate a price they are willing to pay for a flight.
Hotwire instead will offer seats at fixed prices. Users will designate when and where they want to fly, and within hours, Hotwire will offer to sell an airline ticket at a set price. Unlike Priceline, Hotwire customers will not be obligated to buy the ticket.
It addresses a longtime problem for the airline industry.
An estimated 3.5 million airline seats go unfilled each week. Priceline has helped the industry attack the problem, but as popular as the "name your price" service has become, it only sells about 100,000 tickets per week.
Lauren Levitan, an analyst with Robertson Stephens in San Francisco, said it will take Hotwire time to match the strong brand identity of Priceline, popularized by quirky commercials featuring Star Trek star William Shatner.
Priceline had 5.3 million customers as of March 31. About three-fourths of the company's revenue is generated from airline ticket sales.
Priceline Vice Chairman Jay Walker, who launched the company in 1998, said the company isn't concerned about Hotwire. "We are not changing any of our revenue projections, profit projections or customer projections because of this," he said.
However, some industry analysts warned that the Hotwire concept could backfire: The airline industry could be hurt if ticket buyers decide to delay buying tickets through normal channels in hopes of getting better deals from Hotwire down the line, and Hotwire's business model might not work if consumers simply use it to get a price quote and then go to Priceline or another online service to name a slightly lower price.
A similar service called Orbitz is also planning start in September with 25 airlines, including some involved in Hotwire, agreeing to use the site to sell discount tickets. The U.S. Justice Department is investigating whether Orbitz is anticompetitive.
Peterson said he didn't expect Hotwire to face similar scrutiny.
"Clearly, we have some well-heeled nvestors from the airline industry behind us, but we are independently governed and managed," he said.
Ed Rothschild, a spokesman for the Interactive Travel Services Association in Washington D.C., doesn't like the idea of the alliance.
"There is the potential for the major airlines to cooperate, collude and engage in all sorts of anticompetitive practices," Rothschild said. "While this is something that initially might sound good from a consumer point of view, it could give the airlines the power to drive up prices in the long run."
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