Air Canada suspended activity related to the implementation of a new reservations system under development with ITA Software. The carrier recorded a second-quarter impairment charge of C$67 million (US$61.9 million) related to the development of the system, dubbed Polaris.
Mike Russo, Air Canada's chief financial officer, said the decision came after several months of reviewing all ongoing and planned capital expenditures. "We had projected close to $40 million [US$37 million] in additional capital expenditures, most planned for 2010" in connection with the new system, he said.
Air Canada will continue working toward the implementation of certain components of the solution, such as shopping and Web fare technology, Russo said.
The news came as Air Canada reported net income of C$155 million in the second quarter, up from C$122 million in the second quarter of 2008. The increase was boosted largely by foreign-exchange gains. But it reported an operating loss of C$113 million, compared to operating income of C$7 million in the second quarter of 2008. In addition, passenger revenue decreased by $396 million, or 16%, from the second quarter of 2008 due to a decline in yield of 8.9% and a drop in traffic of 7.9%.
Air Canada and ITA Software signed a contract in September 2006 for the development of a new-generation system to replace its legacy RES III system, which was managed by IBM. The transition to the new system originally was envisioned for 2007, with a rollout of airport modules in 2008. But, as is often the case with transitions to new systems, the original schedule was overly optimistic.
In April 2007, Air Canada said the developmental work on ITA's side would be completed by the fall of that year. Little news on the project was forthcoming after that point. Calin Rovinescu, Air Canada's chief executive officer, emphasized that the carrier has "a great relationship with ITA. They've done great work." He said Air Canada will revisit the Polaris project in the future, "but since we don't know when that future will come, we took the conservative approach of writing it down."
He said the implementation of the Web and fare components would result in some cost savings, as would "other improvements to our existing reservations system." Cara Kretz, ITA Software's vice president of corporate communications, said the reservations systems can be used for any other airline. "There are nuances and specific features designed for Air Canada, but we're not building a one-size-fits-all system," she said.
"It's completely flexible and configurable, and you can make changes as you go." Kretz said ITA is talking to other airlines about using the system. "We are actively engaged with them and providing live demos," she said. The company is not planning any shift in focus, she said. "We have a clear strategy, and Air Canada's announcement doesn't change that at all," she said. Kretz added that ITA is not planning any headcount reduction. "We are well capitalized, and we will continue to hire as planned," she said.