ITA Software: The Travel Company Everyone Uses and No One Knows Reinvents Airline Reservations, Again

12/17/08Follow @wroush

In the heart of Cambridge, MA, a few blocks from the MIT campus and across the street from the missile-guidance labs at Draper Laboratories, there’s a 10-story brick office building with a brand-new corporate logo near its crown. It’s the ITA Software building, and the LED-backed logo, with its distinctive airplane-tailed @ sign, was switched on for the first time last Thursday, December 11. Scores of ITA software engineers ventured briefly into the freezing rain to watch the official lighting, then retreated back inside for a champagne toast and a slide show documenting the logo’s installation.

The lighting ceremony, the champagne, and the accompanying speeches were a bit out of character for ITA, which has never been the type of organization to call attention to itself. But for the MIT-bred company, which invented the software that hundreds of thousands of people use every day to buy airline tickets online and which has quintupled in size to some 500 employees over the last four years in order to complete a massive new airline-industry project, the ceremony was a brief moment of self-congratulation.

Jeremy Wertheimer, ITA’s co-founder, president, and CEO, invited me back to his office after the champagne for a rundown on the company, which I’ve been meaning to profile ever since we ran a piece one year ago that described its unconventional campaign to recruit brilliant programmers. The campaign included ads on Red Line trains with Googlesque puzzlers like “Write a program to compute the sum of all the integers between 1 and 1011 both divisible by seven and, when the decimal digits are reversed, are still divisible by seven.”

For all I know, Wertheimer wrote that one himself. He’s got a PhD in computer science from MIT and a huge picture of artificial-intelligence pioneer Marvin Minsky on his wall. He’s won numerous CEO-of-the-year-type awards from high-tech organizations around Massachusetts, and, in one of the largest single venture capital deals in New England’s history, he talked a syndicate including Battery Ventures, General Catalyst, Spectrum Equity, PAR Investment Partners, and Sequoia Capital into investing $100 million in ITA in 2006.

The ITA Software MatrixUnder Wertheimer’s leadership, ITA has also figured out how to make money in an industry—the airline business—where consistent profits have been elusive. The company’s first big product, and still its anchor, is QPX, the system you see when you shop for tickets at the websites of airlines like Alaska, Alitalia, American, Continental, Hawaiian, United, and US Airways, or when you go to airfare comparison shopping sites like Orbitz, Kayak, Farecast, CheapTickets, FareLogix, Hotwire, Sidestep, or Cleartrip. Whenever you search for flights on one of those sites and get a matrix of itineraries and prices sorted by departure time, airline, or price, it’s QPX under the hood. When ITA licensed QPX to airlines and other ticket distributors, it had the foresight to charge not by the installation but by the transaction—meaning part of the price of nearly every airline ticket you buy online goes to ITA.

Clients are happy to pay ITA’s fee, because QPX doesn’t just show options to ticket purchasers, but balances a staggering number of variables behind the scenes—such as seat availability and demand on various routes—to help the airlines set the most effective price for each seat. “If you look at the way people bought airline tickets about 16 years ago, there was no good way to even say ‘What is the cheapest way to get from here to there,’ because it wasn’t required back in 1960,” when the first computerized airline reservation systems were designed, Wertheimer explains. “You needed to have somebody new come along, who didn’t have a pre-existing system. That was what we did. We solved the hard problem of how to sell this perishable good—an empty seat that, by the time the door closes on a flight, is worth nothing—at the highest price somebody is willing to pay at any given moment. And it turned out that everybody wanted that.”

Now the company has embarked on its big second act. QPX helped the airline industry reinvent the ticket purchasing process and save massive amounts of money on live sales agents and travel-agent commissions. But the company’s new all-encompassing reservation system, code named Polaris, touches almost everything else an airline does, from tracking frequent-flyer mileage and issuing reward tickets to automatically rerouting passengers and bags waylaid by weather or mechanical problems. It runs on PC architectures instead of mainframes, uses standard SQL databases, incorporates Web-style interfaces, is built around Internet-based communication protocols, and is generally designed to bring airlines fully into the Web era.

“The airline industry computerized early, in the early 1960s, because it was difficult to see how you could run a thing with millions of passengers and thousands of connections every day without having a broad computer system to tie it together,” says Wertheimer. The first such computer system, called SABRE, was developed by IBM and adopted system-wide by American Airlines in 1964. The system gave American a huge advantage, and was quickly copied by the other airlines. Incredibly, though, the code written by IBM is still at the heart of all four of the main airline reservation systems in use today. And despite the advent of systems like QPX, the limitations of the legacy systems make it very difficult for airlines to … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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