Few companies had a greater impact on the travel industry than Priceline.com “Name-Your-Own-Price” service. What began as an outlet to “name-your-price” for airline travel in 1998, soon expanded to car rentals and hotels.
Hit by the many difficult conditions that 2002 brought, Priceline.com had to quickly change their strategy, citing continuing difficulties in air travel business to their rapid losses in revenue. Priceline.com began to switch their focus from air travel (previously their main product offering) to their hotel and vacation package businesses.
After a nearly full year hiatus, Priceline.com are now re-marketing their airline product, with the deployment of a new service designed to address low bind rates.
Following the release of their 3Q results, Internet Travel News talks to Glenn Fogel, Senior Vice President, International, Priceline.com.
Q. You have just reported that Priceline.com sold a record 1.6 million hotel room nights, representing a 41% increase over the same period a year ago. To what do you attribute this rise in hotel bookings?
The primary reason is our value proposition. Priceline enables customers to achieve savings of up to 40% or more when compared to other online sites such as Expedia, Hotels.com, etc.
Q. Following a weakness in air demand, you have been pushing your hotel product. Isn’t it therefore inevitable that your hotel product see an increase in bookings?
I disagree. Our airline demand was softer because some customers either couldn’t make the tradeoffs required for an opaque ticket or felt the price savings were not worth the tradeoffs, and because we haven’t advertised our air product in approximately a year. In contrast, our hotel product has done well because it continues to offer superior value in the marketplace and we are supporting it with advertising. That said, we are looking at doing air advertising in the 4th or 1st quarters.
Q. How do these 3Q 2003 results compare to 3Q results 2000 - before 9/11?
In the 3rd quarter 2000, Priceline had an operating income loss of approximately $5.2 million (excludes writedown of warrants in licensee).
Q. Priceline.com has recently announced several product developments. Which of these has taken off the most so far?
We had record quarters for hotels, with 1.6 million room nights sold, and rental cars, which broke the 1 million rental car days sold for the first time.
Q. In his speech, Jeffery Boyd
commented that Priceline.com will be adding $3m to its advertising budget across a 6-month period covering the 4th and 1st quarters. How do you plan to deploy this?
For competitive reasons, we are not at this time breaking down the spend.
Q. Which marketing distribution channels does Priceline.com find to be the most effective and why?
We use a combination of broadcast (TV and radio), e-mail and online. For competitive reasons, we do not disclose the specific mix, or spends.
Q. What was your technology budget for 2003? How does this compare with last year and do you expect this to increase next year?
Our third quarter 2003 information technology spend was $1.878mm versus third quarter 2002 spend of $2.585 mm, as disclosed in our press release financials. For competitive reasons, we are do not discuss future budget line items.
Q. The UK is still somewhat behind the US in terms of online bookings. Why do you think this is? How can we overcome consumer fears of online credit card security issues?
The UK is rapidly adopting online travel booking. While one hinderance has been the security issue, this was also an issue in the US and over time people became more comfortable with booking online. (Our own feeling is there is significantly more risk in giving a credit card to a waiter who disappears for a few minutes and could be running dozens of imprints of the card than using the internet). Some of the other issues that have resulted in a lower online purchasing penetration in the UK are:
- Credit card penetration overall (if you don’t have a credit card, it is more difficult to purchase on line—not every seller can process a bank debit card and consumers are more wary of this type of payment than a credit card since it accesses one’s bank account directly;
- Lower internet penetration in the past;
- Historical nature of the travel market in the UK where it was more common to actually see a travel consultant versus the States where face-to-face contact to buy travel was less common.
10. Priceline.com has recognised the importance of flexibility for the consumer booking online, with the re-launch of Priceline.com’s airfare product. How important is it for customers to know exactly what they are booking?
Consumers have different needs at different times and place different values depending on numerous factors. When getting the absolute lowest price is highly valued and one can be flexible about departure and arrival times, then the opaque NYOP air product is the right product. However, when one must be in a certain location by a certain time, then the NYOP product is perhaps not the right product. We are offering the consumer the choice so they can be assured of getting the best price for the product they want to choose and we are the only company that can offer this choice.
Q. Will you ever compromise your hotel product and offer the consumer more choice/ information?
We already do offer the consumer a fully disclosed hotel product under both our Lowestfare.com
brand and our Hotelweb.com
Q. From the consumer’s viewpoint, to what extent is it a gamble to book a hotel with Priceline.com?
It’s no gamble at all. We offer our customers the exact same quality hotel accommodations at savings of up to 40% or more compared to Expedia, Travelocity, Hotels.com, etc.
Q. News has just broken that IAC has completed it’s acquisition of Hotwire. Any plans for consolidation for Priceline.com?
We do not comment on this subject.
Q. Would you say that Priceline.com has re-defined the way that goods are sold online?
We would say that the internet has enabled certain new ways of purchasing goods and service. The Name-Your-Own-Price system is probably workable only on an automated basis and the internet is a critical part of this automated system.
Q. Which destinations are you expecting to be popular for Christmas 2004?
Simply put - home.
Q. What are your priorities for Priceline.com in 2004?
- Successfully introduce our new combination opaque/retail air service.
- Continue to grow our other non-air products - Hotels, Holidays (dynamic packages) and Cruises.