ITA VC deal indicates turbulence ahead for airlines’ legacy IT: media

erring to recent $100 million infusion of venture capital in ITA Software Inc., a media report has termed the development as pointer to “sweeping changes in store for the airline industry and the IT infrastructure the industry has relied on for decades”.

According to informationweek.com, the company has developed airfare-booking software that lowers processing costs to a few dollars per ticket, far below the $12 a ticket airlines pay reservation processors like the Sabre Travel Network. “And CEO Jeremy Wertheimer sees opportunities to develop apps to help airlines modernise everything from reservation systems and call centers to gate operations and aircraft maintenance,” according to the report.

“With most of those deals (with global distribution systems) expiring this year and the deregulation of airfare reservation systems in 2004, airlines are leveraging their increased bargaining power. While they need the Sabres and Galileos to display fares to travel agents--last week Northwest Airlines signed a new five-year pact with Sabre--the savings ITA is promising has some airlines rethinking those relationships,” added the report. “Alaska Airlines has shunned such contracts so it could offer special fares exclusively on its Web site. The strategy has worked, as Alaska generates nearly 40 percent of its revenue from its Web site. It’s using ITA's booking application to make those low fares available to travel agencies more cost-effectively.” The airline may further restrict, or even remove, its airfares from certain places “if we can’t get economics that we think are fair,” Steve Jarvis, sales and customer experience VP, reportedly says.

Further, the report adds, one hurdle for ITA and its closest rivals, G2 Switchworks and FareLogix, are travel agencies that have balked at using multiple systems to search for airfares. And Sabre has been overhauling its applications to run on Linux and low-cost servers, although mainframe-based systems remain at the core of its business, says the report.

In the same report, it is being said that ITA’s capital infusion will accelerate the industry’s transition to new technology, Continental’s John Slater, managing director of distribution and E-commerce.
says. “We’re waiting for these systems to mature a little bit and give travel agents more of the information they need,” Slater has been quoted as saying. “It’s important for us to see these new entrants gain traction.”