In an effort to trim capital expenditures, Air Canada has discontinued most of its agreement with ITA Software to build a new reservations system for the airline.
The project dates to 2006, when ITA Software stopped work on an alternative distribution system for travel agents to begin creating the Air Canada reservations system known as Polaris.
Cara Kretz, an ITA spokeswoman, last week sought to downplay the hit, saying that ITA would be "just staying the course," continuing to build and test an airline-reservations solution for prospective customers, and that there would be no layoffs resulting from Air Canada's decision to scuttle the Polaris project.
Kretz said Air Canada would continue its implementation of the project's first phase, integrating ITA's QPX air search and faring solution for the airline's websites, but she acknowledged that this part of the reservations system plan accounted for "probably more than 10% but less than 25%" of the entire project.
However, that accounting doesn't factor in the revenue that ITA would have garnered for hosting the system for many years to come. Air Canada's current res system is hosted by IBM.
One of ITA's investors told Travel Weekly it was "disappointing that Air Canada is only doing the first part and not the full implementation, but from an overall perspective, this is not tremendously material. ... ITA has a very healthy balance sheet."
Air Canada President and CEO Calin Rovinescu announced the carrier's decision in a Q2 earnings conference call on Aug. 7."In a nutshell, we have a great relationship with ITA, and they have done great work here," he said.
But he added, "Part of this cost program is not only to reduce expenditures that we currently have but future expenditures as well."
For Q2, Air Canada recorded an operating loss of about $113 million, including an impairment charge of about $61 million for its investment in Polaris. The airline said it also would not be spending another $36.5 million in capital expenditures that it had projected it would need in 2010 to complete the project.
In 2006, ITA secured $62.5 million worth of investments from Battery Ventures, General Catalyst Partners, PAR Investment Partners, Sequoia and Spectrum Equity.
In addition to developing a reservations system, ITA operates the successful QPX air search and faring system, used by more than two dozen airlines, wholesalers, online travel agencies, meta-search engines and technology companies.
Still, one ITA customer, who asked not to be identified, said the impact of the Air Canada decision "is significant. ITA spent lots of time and bodies on Air Canada. I don't know the financial impact, but it's still a kick in the shorts."
Another ITA customer who wished to comment anonymously said that Air Canada's decision "is more of a reflection on Air Canada's financial situation than anything else."
This customer saw a silver lining for ITA's reservations hosting business.
"Building a reservations system for a unique carrier like Air Canada, with its unique pricing structure, is actually not a good starting point, since so much of what they would have built for [Air Canada] would have been customized and not easily transitioned to a more traditional carrier," this customer said. "So in some ways it may free ITA to build [a] core system that is attractive to more airlines."
Kretz said ITA was "a well-capitalized company" and that Air Canada was not ITA's largest customer in terms of revenue.
"It is not affecting us from that standpoint," Kretz said. "We've been working on it for over three years. We are pretty far along with other customers."