Stamford, Connecticut, Nov. 17 (Bloomberg) -- Priceline.com Inc. said United Airlines, American Airlines and US Airways Group will join its service that lets consumers bid online for tickets, doubling the amount of seats the Internet retailer can sell and ending the last holdouts among big U.S. airlines.
The retailer also said it would issue warrants to each of the eight major U.S. airlines that use its service, resulting in a fourth-quarter charge of $1.1 billion. The charge is for the accounting cost of the warrants, which can be converted into 20 million shares, or about 10 percent of its common stock.The three new airlines--UAL Corp.'s United, AMR Corp.'s American and US Airways--were the only major U.S. carriers that hadn't agreed to let Priceline.com sell tickets. With the addition of United and American, the No. 1 and No. 2 U.S. carriers, Priceline.com now has access to 90 percent of the nation's market.
"We convinced these three over time that we were a good service that could improve their business," said Priceline.com Chief Executive Richard Braddock.
Shares of Stamford, Connecticut-based Priceline.com rose 8 3/4, or 13 percent, to 77 1/2 in early trading on the Nasdaq stock market. They've more than quadrupled since the company first sold shares to the public in March at 16.
The three airlines will allow Priceline.com to add 142 new cities and increase the chances that a customer will receive the price offered on a ticket, the company said.
Priceline.com began business in April 1998 selling airline tickets and has since expanded into hotel rooms, mortgages, cars and groceries. Yesterday, Priceline.com said it was testing a service with Ford Motor Co. to let customers bid for new cars through the Internet site of the world's No. 2 automaker. Next year, the retailer plans to sell long-distance telephone calls.
The agreements come six months after former AMR CEO Robert Crandall criticized airlines for joining up with Priceline.com, saying the companies were cannibalizing their own sales.
The warrants give the airlines an equity stake in Priceline.com and help the retailer ensure it gets the inventory it needs, said spokesman Brian Ek. It started issuing warrants when it signed up Delta Air Lines Inc. to encourage the No. 3 carrier to participate in its new and untested business.
Because of the new warrants, Atlanta-based Delta is restructuring its holdings in Priceline.com. On Nov. 12, Delta acquired about 16.5 million shares of common stock at 93 cents apiece, Priceline.com said.
Delta then swapped 6 million shares for the same number of a new convertible preferred stock that will pay in-kind dividends at 8 percent a year. Priceline.com can buy the preferred stock at $59.93 apiece after three years.
Delta also sold 2.1 million shares of Priceline.com common stock to the retailers' founder and Vice Chairman Jay Walker and Braddock for a total of $125 million.
Delta, American and United will each get warrants for 5.5 million common shares of Priceline.com. US Airways will get warrants for 1.5 million shares. Continental Airlines Inc., Northwest Airlines Corp., America West Airlines Inc. and Trans World Airlines Inc. will each get warrants for 500,000 shares.
Priceline.com said its 3 million customers buy more than 50,000 airline tickets each week on average.
"There's a calculation that we do that demonstrated that the airlines using Priceline were growing faster than those that weren't," Braddock said. "And the reason for that growth was basically Priceline. The airlines saw that too. They decided we were grown up enough."
United will sell tickets today, while American and US Air will start selling them in a few weeks.
Priceline.com also has about 20 major international airlines that participate in its business.