Air Canada's cost-cutting a blow to ITA Software

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In a move to trim capital expenditures, financially troubled Air Canada discontinued its effort to build a new reservations system, a 4-year-old project led by ITA Software.

An ITA official on Monday characterized the project as being "huge for us."

But ITA spokeswoman Cara Kretz downplayed the loss, saying the company is "just staying the course," continuing to build and test an airline reservations solution for prospective customers. She said there would be no layoffs resulting from Air Canada's decision to scuttle the Polaris project.

Kretz said Air Canada would continue with 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 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. IBM currently hosts Air Canada’s res system.

One of ITA's investors said that although it is "disappointing that Air Canada is only doing the first part and not the full implementation," the loss of business "is not tremendously material."

"ITA has a very healthy balance sheet," the investor said.

During an Aug. 7 conference call discussing second-quarter financials, Air Canada CEO Calin Rovinescu said: "In a nutshell, we have a great relationship with ITA and they have done great work here. Part of this cost program is not only to reduce expenditures that we currently have, but future expenditures, as well."

Air Canada, which reported a second-quarter operating loss of about $113 million, took an impairment charge of $61 million for its investment in Polaris. The airline said it would have spent $36.5 million to complete the project in 2010.

In 2006, ITA scrapped its effort to build an alternative distribution system for travel agents and began building an airline reservations system for Air Canada. At the time, ITA received $62.5 million in funding from Battery Ventures, General Catalyst Partners, PAR Investment Partners, Sequoia and Spectrum Equity.

ITA Software has two business lines: airline reservation systems and a very successful air search and faring system used by more than two dozen airlines, wholesalers, online travel agencies, metasearch engines and technology companies.

Still, one ITA customer who declined to be identified said losing the Air Canada account 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," the customer said.

Kretz said ITA is "a well-capitalized company" and that Air Canada is 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."

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