Daniel S. Martinez tried everything to get a cheap ticket from
Seattle to Dallas. He logged onto several major online ticketing
agencies -- Expedia, Travelocity and Preview Travel -- tried the
airlines' own Web sites and even had his company's travel agent call
around for him. Since he had only two days before he had to fly, the
best fare he could find was $978 on America West.
Sick of paying so much money for last-minute business trips, he
logged onto a new online travel service called Priceline, which opened its electronic doors last month. At
Priceline, getting a ticket works a little differently than at other
services; instead of perusing the prices of flights to a certain
destination, prospective travelers tell Priceline how much they are
willing to pay for a ticket, and then wait to see if the company can
find a ticket for that price. "I really needed this ticket, and I
didn't feel like paying through the nose; I thought it couldn't hurt
to try," he says. Martinez bid $300, and an hour later discovered he
was flying the same America West flight for almost $700 less than the
fare he'd found through traditional methods.
It was the same flight, same time, same layover in Phoenix. Only
at one-third the price. How was Priceline able to get such a
cut-rate deal? It's simple: Priceline's business model is based on
something all frequent fliers know -- most airlines take off with
empty seats aboard. According to Priceline, there are 500,000 every
day, each one representing lost revenue for the airlines. Since a
cash-strapped customer is better than no customer at all, Priceline
has convinced the airlines to sell it the seats that they estimate
will go unsold. The tickets are then sold to the customer for a
marginal profit. (Priceline made about $35 on Martinez's ticket.)
"Seats are very perishable," says John Lampl, a spokesman for
British Airways. "Once the airplane takes off and the seats are
empty, they'll never be recoverable. It's not like a box of cereal
that sits on the shelf, or laundry detergent, which can be sold at a
But to get these seats, travelers have to be extremely flexible.
The only information Priceline requests on its ticket order form is
the departure and return dates and destinations. Everything else --
the time, the airline, the length of the layover(s) -- is up in the
air, so to speak. The flight can leave any time from 6 a.m. to 10
p.m. and stop in any city for as long as two hours.
Once the traveler's information -- including a credit card number
-- is submitted, Priceline contacts the airlines to see if any of
them will release a seat at that price. If one does, Priceline buys
the ticket and confirms the purchase by e-mail. If they don't, there's
no loss -- just the amount of time it takes to complete the process
(which can be long, its server is extremely slow). Priceline says you
will hear back from the company either way within an hour of
submitting your request.
The ticket the airline issues is highly restricted -- no refunds,
no changes, no frequent flier mile awards. And the whole process can
feel like a big gamble: Roll the right price, hope Lady Luck is on
your side and save big. Ron Pernick, a spokesman for Preview Travel,
says that's a big drawback since most travelers "are looking to not
play a game as much as plan their trip."
Priceline will not disclose how many of these bids are successful
-- only that every 22 seconds, 24 hours a day, someone completes the
request process. Priceline's president and co-founder, Jay Walker,
says that customers have a better chance when they make a reasonable
request -- not when they bid a dollar, as some people have done.
Martinez based the amount of money he submitted on the price for a
ticket from Seattle to Dallas with 21-day advance notice. Customers
have one free shot to get it right; subsequent bids on the same
itinerary cost $25.
Walker readily admits that Priceline is not for everyone,
acknowledging that most people will not like the uncertainties that
come along with a Priceline ticket. He says he's not for
business travelers, he's for leisure travelers, people with
time on their hands -- students, vacationers, people who would
rather not go on a trip than pay full fare. He sees this select
group of budget-conscious, last-minute, procrastinating desperadoes
as his market niche. "If anything, our motto would be: Frustrated?
Try us," says Walker. "Real people can't plan in advance when they
want to go on a trip. What if the baby's born early or you've got to
go to a funeral? Airline tickets can be expensive."
Since Walker sees this target audience as such a specialized
group, he doesn't think he'll be competing against any of the
existing travel agencies or cutting into the airline's own traffic.
In his eyes, he'll be helping the overall industry by bringing new
people into the online ticketing markets and helping airlines sell
what would have been lost revenue.
But as Martinez's example suggests, business travelers may also
turn to Priceline, which could lead to a situation where Priceline is
competing with the two industries it says it's trying to help -- the
airlines and online travel agencies. American Airlines, for one,
declined to participate with Priceline because it was afraid it might
compete with its own ticket sales. Why would people buy a ticket
through American directly when they could bid for a ticket through
Priceline and maybe get it cheaper?
"Priceline is going to turn the airline industry on its head,"
Martinez says. "The airlines make their money from the last-minute
business travelers, but these people, like me, are going to start
using Priceline. I don't think they know it yet, but you will see a
lot of young professionals who have to price things out and don't
always want to pay $1,500 and wait to get reimbursed start using
Martinez says he normally would have bought his ticket through
Preview, Expedia or Travelocity, but since his success with
Priceline, he's going to try buying his next ticket the same way.
Preview's Pernick says he doesn't foresee any competition or overlap
between the two agencies, however. "We are a full-service site with
everything from the booking of the ticket to helping you out when
you're traveling and something goes wrong and you need to talk to
your agent. I believe it's a minority of people who'd be
attracted to the proposition of buying a ticket that's
nonrefundable, nonchangeable, maybe on a second-tier airline, without
knowing the time they're leaving. "
Pernick says there's room in cyberspace for all of them. As
proof, he points to a study released last month by the Department of
Commerce, which found that Internet e-commerce is growing at twice
the speed of the overall economy.
Are there enough e-customers to go around? Online consumer buying
patterns and preferences are still so volatile, it's impossible to
predict. But with $25 million in backing and enough capacity to
handle more than 100,000 hits per minute, Priceline seems ready for a