Northwest cuts off Priceline

The airline is no longer providing discounted tickets to Priceline.com--a move analysts say was likely prompted when it began expanding beyond its "name your price" model.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read
Northwest Airlines is no longer providing discounted tickets, called "Net fares," to Priceline.com, a move that analysts say was likely prompted when Priceline began expanding beyond its "name your price" business model.

"At the moment we have discontinued providing Priceline Net fares," Northwest spokesman Kurt Ebenhoch told CNET News.com on Thursday evening.

Ebenhoch declined to say when Northwest, one of the nation's 10 biggest airlines, first cut off Priceline or whether the decision is permanent. As for the reasons for the move, Ebenhoch said, "We have become increasingly concerned about changes in the Priceline business model."

Brian Ek, a spokesman for Priceline, confirmed that the company no longer offers Northwest's Net fares but said that compared with Priceline's total sales, Northwest tickets made up a "very, very small number."

Henry Harteveldt, a travel analyst for Forrester Research, said that one airline pulling out is not likely to significantly affect Priceline. Should other airlines follow Northwest's lead, however, Priceline could suffer a severe blow, Harteveldt said.

Ek rejected that possibility. "We enjoy a great relationship with the airlines," he said.

Northwest's move comes as Priceline appears stuck in neutral. The company remains the largest discount travel provider, but its first-quarter earnings last month revealed shrinking revenue and stagnant growth. Priceline's stock price fell more than 20 percent on the news. At the same time, other Web travel companies, such as Expedia and Hotels.com (formerly Hotel Reservations Network), have flourished.

While Ebenhoch declined to discuss details of why Northwest stopped selling Net fares to Priceline, Harteveldt said that it's no secret some airlines were "angered" when Priceline began selling fixed-priced fares on eBay.

Usually Priceline asks customers to bid for fares, but in an agreement that Priceline struck with eBay in February, it agreed to allow customers to book flights and hotel rooms and make car reservations via conventional means, using eBay's "Buy It Now" feature as well as an auction format.

By allowing customers to buy without bidding, Priceline had changed a fundamental part of its business model, Harteveldt said.

"The airlines sell their own published prices and don't want Priceline getting into the same arena," Harteveldt said. "When Priceline goes on to eBay with a 'Buy It Now' option, that's like showing up at Martha Stewart's house with your own 'lean cuisine.'"

Airlines were first attracted to Priceline because of its unique business. It allowed them to unload excess inventory by letting Priceline sell tickets at a discount. Because Priceline withholds the name of the air carrier until a customer buys a ticket, the airlines were protected from alienating customers who pay full retail prices.

Because Priceline appeals mostly to bargain hunters, the service also didn't compete against the airlines for their mainstream clientele, who are more comfortable knowing the name of an airline before buying tickets.

"The airlines want to take advantage of the price confusion that exists in the marketplace and let customers determine the value of a trip," Harteveldt said. "That's the value that Priceline offers them."

He added that another motive for Northwest to abandon Priceline is that Northwest holds an undisclosed share in Priceline rival Hotwire along with five other top 10 airlines. Among the other companies that founded Hotwire are America West, American Airlines, Continental Airlines, United Airlines and US Airways.

Hotwire has been making strides in the discount travel market, analysts have said, but it still has a long way to go before toppling Priceline from the No. 1 spot.

But the airline backers of the company may be choosing now to send their business where they have an investment.

"It wouldn't surprise me if Hotwire's other owners pulled out of Priceline as well," Harteveldt said.