Google threw a big twist into the online travel business today, announcing a long-rumored agreement to acquire ITA Software, a Massachussets-based flight-information software company, for $700 million in cash. ITA's search and pricing system is used by Google rival Microsoft, in addition to online travel agencies Kayak, Orbitz and many airline sites.

In its announcement this afternoon, Google made it clear that it won't be selling tickets itself, and noted that it "will honor all existing agreements," with ITA partners. At the same time, Google is clearly looking to reshape the way people find flights as part of their broader vacation and travel booking.

"While online flight search is rapidly evolving, we think there is room for more competition and greater innovation," the company said in a blog post. "Once we’ve completed our acquisition of ITA, we’ll work on creating new flight search tools that will make it easier for you to search for flights, compare flight options and prices and get you quickly to a site where you can buy your ticket."

Microsoft declined to comment on the deal. Bing Travel, based on technology acquired in the purchase of Seattle-based startup Farecast, offers an airfare trends prediction service in addition to traditional flight information, directing users to online travel agencies to purchase flights.

On a conference call discussing the deal, Google CEO Eric Schmidt told analysts and reporters that he expects the deal to be scrutinized by regulators. In a fact sheet about the deal, the company attempts to preempt possible competitive concerns about the acquisition -- saying, among other things, that it doesn't compete against ITA currently and therefore won't be changing any market shares through the acquisition.

Bellevue-based Expedia said previously that it wasn't concerned by the possibility of Google buying ITA. Expedia uses its own underlying airfare search and pricing system.

Tom Romary, CEO of Seattle-based online airfare tracking and refund service Yapta, said in an email that the acquisition could force changes in the way online travel agencies (OTAs) attract users to their sites.

"The OTAs (Expedia, Orbitz, etc.) and Kayak are obviously very dependent on Google for traffic and booking volume. Assuming Google deploys direct access to pricing and inventory for travelers searching for flights or hotel, then it's very likely the average cost of traffic for the OTAs will increase and their margins will decline," Romary said via email. "The OTAs will need to depend more on (search engine marketing) traffic as SEO (natural search traffic) declines. The OTAs best defense strategy is to find additional ways to deliver unique content to try to move beyond SEO from air search results."

Sequoia Capital, an early investor in Google, is a major financial backer of ITA.