Antitrust Law Daily Airline booking company’s proposed $360 million acquisition hits snag with Justice Department opposition
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Tuesday, August 20, 2019

Airline booking company’s proposed $360 million acquisition hits snag with Justice Department opposition

By Jody Coultas, J.D.

The Justice Department has filed suit to block Sabre’s acquisition of a disruptive competitor, Farelogix, Inc., because the transaction will lead to higher prices.

The Department of Justice announced today that the Department’s Antitrust Division has filed a civil antitrust lawsuit to block Sabre Corporation’s acquisition of Farelogix, Inc., alleging that Sabre was attempting to eliminate a disruptive competitor and that the transaction would eliminate competition that has substantially benefitted airlines and consumers. Sabre’s motivation for the transaction, according to the complaint filed in the U.S. District Court for the District of Delaware, was to eliminate a competitive threat and follows similar attempts by Sabre to neutralize competitors (U.S. v. Sabre Corporation, Case No. 1:99-mc-09999).

Sabre operates the largest global distribution system in the U.S. with over 50 percent of airline bookings through travel agencies. Farelogix offers a next-generation booking services solution, known as Open Connect. Booking services are IT solutions that allow airlines to sell tickets and ancillary products through traditional brick-and-mortar and online travel agencies to the traveling public. The proposed acquisition was announced in November of last year and was likely to close this week absent opposition from the Justice Department.

The complaint alleges that Sabre operates a global distribution system, or GDS, which is a digital platform that provides booking services to airlines in addition to other functionality, and has operated outdated technology and resisted innovation. Farelogix, on the other hand, introduced new technology to the travel industry that enables airlines to make more varied and personalized offers to consumers who book through travel agents, including bundles of ancillary products such as wi-fi, lounge passes, entertainment options, and meals—choices not available to travelers through Sabre’s legacy technology. Airlines have successfully leveraged their ability to turn to Farelogix to negotiate lower fees with Sabre and the other GDSs, and to reduce their reliance on GDSs for booking services.

Sabre executives have acknowledged that acquiring Farelogix would eliminate a competitive threat and further entrench Sabre in booking services. On the day Sabre announced its intention to buy Farelogix, Sabre’s chief sales officer texted a colleague that one major U.S. airline would "hate" it. The colleague replied, "Why, because it entrenches us more?"

The suit also contends that Sabre’s attempt to acquire Farelogix follows many other attempts by Sabre to neutralize its competitor, including a campaign to "shut down Farelogix." In 2013, Farelogix’s CEO alleged that "Sabre has wielded its monopoly power in an attempt to destroy Farelogix and prevent competition…" Further, in 2018, Farelogix’s CEO told European antitrust authorities that Sabre and the other two major GDSs "continue to leverage significant market power to preserve their market position and stifle innovation." Now that Farelogix has gained a foothold in booking services and is poised to grow, Sabre seeks to eliminate this scrappy competitor once and for all by acquiring it, according to the complaint.

"Sabre’s proposed acquisition of Farelogix is a dominant firm’s attempt to take out a disruptive competitor that has been an important source of competition and innovation," said Assistant Attorney General Makan Delrahim of the Antitrust Division. "If allowed to proceed, the acquisition would likely result in higher prices, reduced quality, and less innovation for airlines and, ultimately, traveling American consumers."

Attorneys: Laura Hatcher, U.S. Attorney's Office, for the United States.

Companies: Sabre Corp.; Sabre GLBL Inc.; Farelogix Inc.

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