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.

Dara and Barney: Gamesmanship and the Orbitz Zero-to-Hero Hotel Plan

In a post, Expedia's Booking Fees: The Trigger Point in late March, and in the finest traditions of New York Post Page Six and TMZ, I recounted a rumor making the rounds that Expedia CEO Dara Khosrowshahi had supposedly gone after Orbitz and eliminated flight-booking fees because he was angered at Orbitz for hiring Barney Harford, an ex-Expedia exec, as the Orbitz Worldwide CEO.

Actually, the flight- and hotel-fee wars, which Expedia kicked off March 11, had nothing to do with personalities and much to do with Expedia losing bookings to airline sites, as well as to Priceline, which nixed air-booking fees last year.

And, the timing of Expedia's booking-fee deletion also coincided nicely with subsidiary TripAdvisor's launch of its flight metasearch product. With the air-fees gone, Expedia could compete nicely on flights with airline websites.

But, if Dara wasn't miffed at Barney's hiring in January, Khosrowshahi should be upset about it now.

That's because Harford is hellbent on putting some muscle into OWW's relatively small hotel business, and in the process he's taking on Expedia's sweetspot.

In the process, some of Harford's actions have caught Expedia flat-footed.

Since late April, Orbitz has reduced its hotel-booking fees, a development that impacts Expedia at a rate of around $3 million per month because Expedia matched Orbitz's trims.

And, Orbitz also began displaying the total cost of a room in initial display results, and this week introduced its Hotel Price Assurance program, both of which were industry firsts.

And, Harford, who helped build Expedia's hotel business in Asia-Pacific a few years back, promises much more to come on the hotel front.

"We believe that the hotel business is the long-term area of focus for us and we are committed to making the appropriate investments behind that," Harford told financial analysts yesterday.

The company that was founded by major U.S. airlines almost a decade ago, before being bought by Cendant/Travelport and then spun off into an IPO, now is refocusing its tech teams and hoping to transform its hotel infrastructure and clout.

Harford characterized the global hotel business as "huge, yet the online hotel distribution landscape is still very immature."

"We have scale at the level of customer demand and have the opportunity to close the gap by focusing on initiatives that make it easier for those customers to book hotel(s)," Harford said.

Meanwhile, Harford claims that Orbitz has been able to weather Expedia's booking-fee attack and will be able to offset its own loss of those fees.

Factors in recouping the lost fees, Harford said, include increased air-ticket volumes because of the fee elimination; incremental bookings of vacation packages; the renegotiation and rationalization of e-marketing agreements; an increased focus on SEO (Search Engine Optimization) and CRM; $40 to $45 million in expense reductions since November; and a year-over-year jump of 12 percent in Orbitz’s advertising and media business to $14 million in the first quarter.

Considering these offsetting factors, Harford added, Orbitz has “the flexibility” to “sustain” its actions on air- and hotel-booking fees.

Translation? This could be Barney's smoke-signal to Dara that if Expedia intends to drive the online travel agency business into the ground by making permanent the now-temporary implementation of flights-without-booking fees past the end of May, then Orbitz can survive the pressure and will maintain its own reduction in hotel-booking fees, which causes Expedia great pain.

On Harford's part, this could be gamesmanship or it could be resolve.

Sabre Edges Past Travelport in Market Share

Sabre, the company that owns Travelocity, went private in 2007 so all those stats that journalists and analysts love to crunch were MIA (as in Missing In Action) over the last two years, until March 5 when the Southlake, Texas, company released its fourth quarter and full-year 2008 earnings report and accompanying data.
Sabre lost a bunch of money for the year, but a review of the stats shows that it actually gained global market share, surpassing Travelport GDS (i.e. Galileo and Worldspan.)
In a declining travel market, the Sabre global distribution system (GDS) crunched 383 million transactions in 2008, 3 percent fewer than in 2007. But Travelport's segments fell faster, 11 percent, to 372.1 million. Of course, it is possible that Amadeus may have processed even more segments than Sabre. It's hard to say because Amadeus is a private company and hasn't publicized its numbers. It also counts transactions differently than Sabre and Travelport do.
So, how did Sabre overtake Travelport? Methinks that one major factor is that Expedia swapped out longtime partner Worldspan in favor of Sabre as Expedia's primary res system. And, all of those Expedia.com bookings definitely add up.
You have to love the travel industry. Expedia helps Travelocity's owner, Sabre, overtake Travelport, which controls Orbitz. So many plot twists:)