Airline Travel Service Launches

The timing couldn't have been more serendipitous for Tuesday's launch of startup Hotwire.com. Its major competitor--Priceline.com Inc.--is retreating from an unsuccessful venture, its stock is crashing, and its customers are suing it for fraud.

Much of the marketing for Hotwire was done by Priceline, which used the attention it garnered when it closed its WebHouse grocery club this month to reiterate that selling cheap airline tickets online is a much better business.

Hotwire--owned by America West, American, Continental, Northwest, United, USAirways, and Texas Pacific Group--is the first cooperative attempt by the airlines to wrest back their customers from the independent dot-coms that have stolen the show: Travelocity.com, Expedia.com, and Priceline.

Hotwire CEO Karl Peterson says he has learned from Priceline's mistakes. Priceline bidders are automatically charged for tickets that fill the bill; Hotwire will simply find the cheapest ticket out there and ask if you want it. "We're getting rid of all the hassle of bidding and waiting, and doing away with buyer remorse," he says.

That little change "makes a huge difference, and airline ownership is another big factor," says Philip Wolf, president of PhocusWright.com, a travel technology consulting firm. "Consumers have an insatiable appetite for cheaper air fares, and for the airlines, it's all about control. If flights are full, they'll give their empty seats to their own sites first."