NEW YORK -- The major players in the distressed inventory market
may feel a bit distressed themselves these days as Travelocity and Expedia have
unveiled significant new last-minute travel offerings.
"The two 800-pound gorillas have just laid their cards on the
table," said Forrester senior analyst Henry Harteveldt. "It is a
definite slap at Priceline and a validation of Hotwire's business
model [with ticket prices revealed up front]."
The distressed inventory market is a key battlefront for airline
Web sites, on-line agencies and brick-and-mortar agents.
Forrester found that 11.5% of the more than 12 million U.S.
households that purchased travel on line in the past year bought or
reserved last-minute tickets, including Web-only fares.
Travelocity
Travelocity this month will introduce its GoodBuy flights
feature, which includes opaque fares -- where customers know the
airfare but not the carrier name or the schedule -- and negotiated
net fares from some 30 carriers.
It also plans to introduce GoodBuy lodging, with discounted
hotels and vacation rentals through Hotel Reservations Network.
Price-conscious consumers with flexible schedules who are
interested in Travelocity's opaque air product have 30 minutes to
book a selected flight.
If the deadline passes, then that consumer won't be able to buy
it for at least 72 hours.
One compelling aspect of GoodBuy is that the opaque and net
fares are integrated into fare search results along with published
fares.
Consumers can still access Priceline.com inventory through a button on
Travelocity -- if they can find it.
Travelocity always has considered Priceline.com a direct
competitor, even though the two executed a marketing and customer
referral agreement in March 2000 where each pays the other a fee
for referred customers.
Asked at the recent eTravel World conference here about the
future relationship of the two companies, Travelocity chief
executive officer Terry Jones said, "you can read into it what
you've read into it. We're going ahead with our own opaque
product."
Jones noted that Priceline.com had $1.24 billion in revenue in
2000 as it targets consumers who want to trade price for
convenience. "We want to capture some of those people," he
said.
Expedia
Expedia's new Bargain Fares, which already are operational on
the Expedia site, are opaque fares from some 20 carriers.
As with Travelocity's new feature, the opaque fares, along with
other special fares in which the carriers are identified, are
integrated into the search results.
Elsewhere on Expedia -- and it's not part of the search path --
consumers can use Flight PriceMatcher to bid on distressed
inventory.
Priceline sued Expedia over use of that bidding model and terms
of the settlement require Expedia to pay Priceline.com royalties, a
Priceline.com spokesman said.
A key barometer in the success of Travelocity's and Expedia's
product introductions, according to IDC senior research analyst
Joshua Friedman, will be how much inventory they get from Hotwire's
airline owners -- American, America West, Continental, Northwest,
United and U.S. Airways -- and Delta, which has been a Priceline
investor.
Some of these airlines have not partnered with either
Travelocity or Expedia.
The two on-line agencies declined to name the carriers with whom
they have negotiated deals, but both said they have inventory from
major carriers.
Hotwire, Priceline.com say they're unfazed
Niche players Hotwire and Priceline.com say they are undaunted
by Travelocity's and Expedia's introduction of new discounted
inventory features.
Hotwire chief executive officer Karl Peterson labeled the new
Expedia and Travelocity opaque inventory features "Hotwire
knockoffs," contending that they were patterned after the opaque
inventory model that Hotwire and others have deployed.
Peterson said the introductions of these products by the two
large on-line agencies represent tacit endorsement of the San
Francisco company's business model, where consumers know the price
-- but not the carrier -- before inputting any credit card
information.
But he said the integration of net inventory into search results
along with published fares at Travelocity and Expedia may pose a
"danger for suppliers" if shoppers are lured to the low fares.
For example, he said "someone who would have been happy paying
$400 may try an opaque fare for $300. The airline has lost
$100."
Hotwire, founded by the Texas Pacific Group, stayed out of the
published fare business because it wanted to focus on its niche, he
said.
"I believe we will have a broader and more extensive list of
quality partners than the participants in the other two programs
[Expedia and Travelocity]," Peterson said.
At Priceline.com, spokesman Brian Ek noted that the new
Travelocity and Expedia products are "not what we offer," implying
that the name-your-own price bidding model has a distinct
attraction to consumers.
"The airlines are flying 500,000 empty seats every day. Airlines
are still facing a very large challenge of how to put bodies in
those seats and we provide an effective way."
Ek declined to comment when asked if Priceline.com still
considers Travelocity a valued partner.
Priceline.com hopes to generate a turnaround and has recently
enhanced its site with a bevy of new last-minute products,
shortened itineraries and faster response times, he said.
In a Goldman Sachs presentation this month, Priceline said it is
getting its financial house in order. Priceline Europe raised $25
million from General Atlantic Partners, and Priceline.com, the U.S.
operation, attracted a $50 million equity investment from Hutchison
Whampoa Ltd. and Cheung Kong Ltd. while also eliminating a $280
million liability by restructuring Delta's preferred stock.