Tuesday, August 11, 2009

ITA Software's Lollipop

ITA Software, the king of online air search and pricing, undoubtedly took a big hit when Air Canada cancelled the bulk of the reservations system that ITA had been working on for four years.

Remember that at the height of the pitched debate in 2006 involving ITA, G2 SwitchWorks, Farelogix, Sabre, Amadeus, Galileo and Worldspan about alternative distribution systems and full content in GDSs, ITA abandoned the distribution game, in favor of developing a host system for Air Canada.

Now, to a large extent, that Air Canada project is off the table.

One of ITA's QPX customers told me that the loss of the Air Canada project must feel like "a kick in the shorts" to ITA, and a second customer chimed in: "Anyone who says that the Air Canada thing isn't a HUGE, big-fat deal to ITA is not being truthful."

Meanwhile, one of ITA's investors remarked that ITA has "a healthy balance sheet" and the loss of the Air Canada business "is not tremendously material."

Indeed, ITA's metasearch, online agency and wholesaler customers shouldn't have any fears about the viability of the ITA business.

Look at ITA's client roster, including Continental, United, American, US Airways, Alaska Airlines, Tap Air Portugal, Al Italia, Lot Polish Airlines, ANA, Hawaiian Airlines, Fly.com, Kayak, Bing Travel, Orbitz, FareCompare, TripAdvisor, Accovia, Air Canada Vacations, Cleartrip, Defense Travel Sytems, Farelogix, Hotwire, Travel Impressions, Reardon Commerce and New Travel.

That's a lot of flight queries and quarters rolling in by the second.

The ITA investor with whom I spoke said although there is "disappointment" about losing the Air Canada business, the four-year process enabled ITA to develop a "big lollipop," namely a "brand-spanking new" airline reservations system solution which it can take to interested airlines.

The investor characterized the new reservations system, which is said to be in the testing phase, as an "elegant, open-systems solution for the airline industry."

I sort of doubt, though, that many airlines are in the market for new lollipops at the moment.

I don't see many going on a candy-buying spree in the short term.

After all, having an airline wean itself off a legacy system and transitioning to a new res system is a massive project of the highest complexity.

However, recessions do come to an end at some point, so all hope is not lost.

But, consider that Amadeus and United announced in 2005 that the airline would transition from Apollo to Amadeus hosting by late 2008.

That deadline passed quietly and there's been no sign of any migration in the offing.

I wouldn't be surprised if United pulled an Air Canada, but we'll see.

This airline hosting stuff is a tough business.

And, here is the perspective of someone who knows about some of the challenges.

"I think building reservations systems from scratch are extremely difficult tasks for any company to take on," said the source, who doesn't work for ITA. "If anyone can do it, it is ITA. Virgin America bought what was, at the time, Travelport’s new reservations system, aiRES. It is still a very promising system, but it has taken YEARS to get it where it is, and it is still WELL short of promises made when it was bought."

The source sees a silver lining -- which seems a bit Pollyannish -- for ITA in Air Canada's withdrawal.

"It is interesting that ITA will continue to build out the system for other potential customers. Building a reservations system for a unique carrier like Air Canada (with its unique pricing) is actually not a good starting point, since so much of what they would have built for AC would have been customized and not easily transitioned to a more traditional carrier. So in some ways it may free ITA to build its 'core' system that is attractive to more airlines."

An interesting side note about Air Canada is that it is making some distribution news in re-engaging with travel agents through its travel agency portal and API, which it calls AC2U.

Remember that one of the distribution issues with Air Canada in the last few yeas was that the GDSs couldn't display the airline's branded fares in the way the airline sought.

Using the API, Air Canada has hooked up with:

• Agencia by Travelport;

• VTOLite+ and Hawkeye by Farelogix;

• ConvergentPro by Convergentware;

• Cliqbook by Concur Technologies;

• KDS Portal and KDS Corporate by KDS; and

• ResX by TRX

And, although Air Canada has reached out to Canadian agencies with commissions and hooked up to the above distributors and corporate-self booking tools via AC2U, there aren't any new developments with Sabre, which had a big falling out with the airline.

Airline spokesman John Reber said: "There are no specific developments with Sabre at this time. However, we continue to dialogue with them regarding potential solutions."

Maybe some lollipops would work.

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