The UK’s Competition and Markets Authority found that Sabre’s purchase of Farelogix could result in less innovation and increased fees, with airlines, travel agents, and UK passengers being worse off.
Following an in-depth Phase 2 investigation of Sabre Corporation’s proposed acquisition of Farelogix, Inc., the United Kingdom Competition and Markets Authority (CMA) has determined that the transaction could result in less innovation leading to "fewer new features that may be released more slowly," increased fees, and harm to airlines, travel agents, and U.K. passengers. The announcement comes just days after a federal district court in Wilmington, Delaware, denied a U.S. Department of Justice effort to block the deal. The Justice Department is considering an appeal of that decision.
CMA report. Based on its investigation, the CMA’s April 9, 2020, final report concludes that the anticipated acquisition by Sabre Farelogix "may be expected to result in a substantial lessening of competition ... within the supply of merchandising solutions on a worldwide basis and the supply of distribution solutions on a worldwide basis." As a result, the CMA decided to prohibit the proposed merger "in its entirety."
According to the CMA, Farelogix has developed technology that allows airlines to offer more choice to passengers who purchase tickets from travel agents by way of customizing their flight experience—for example, through booking specific meals or securing seats with extra leg room. Although Sabre does not currently offer this new technology, it is investing in developing it. From the CMA’s perspective, if Sabre were to purchase Farelogix, it would be unlikely that Sabre would "develop the technology itself," and airlines and passengers would "lose out from both this lack of innovation and the insufficient competition between the remaining companies in the market." Further, because Sabre is one of the main established businesses in the industry, the CMA believes that "Farelogix’s continued independence will likely help motivate Sabre to innovate further, giving airlines more choices in connecting to travel agents that will allow tickets and extra products to be sold through travel agents in more innovative ways."
Justice Department appeal. Meanwhile, the Justice Department filed a notice of appeal to the U.S. Court of Appeals in Philadelphia of the federal district court’s judgment in favor of Sabre and Farelogix (U.S. v. Sabre Corp., Case No. 1:19-cv-01548-LPS.).
After an eight-day bench trial held earlier this year, the federal district court refused to enjoin the proposed acquisition, concluding that the Department of Justice failed to meet its burden of proof that the deal violated Section 7 of the Clayton Act. The court found that, even though the government failed to properly define the market in which to analyze the transaction, the acquisition would neither increase prices nor deter innovation. Still, the court did note that the Sabre-Farelogix deal might reduce one source of airlines’ leverage in negotiating with the three global distribution sources (GDSs), including Sabre.
Among other things, the Antitrust Division had alleged that Sabre was attempting to eliminate a disruptive competitor and that the proposed acquisition of Farelogix would eliminate competition that has substantially benefitted airlines and consumers. Ultimately, the Justice Department failed to persuade the court that Sabre’s largest U.S. global distribution system for airline ticket sales sought to eliminate a competitive threat posed by Farelogix’s "next-generation technology."
As reflected by the Justice Department’s notice of appeal, the Antitrust Division is now seeking to "protect its appellate rights, and to give the Solicitor General time to review the decision and determine whether to authorize the appeal, and whether to seek interim equitable relief."
Attorneys: Julie S. Elmer and Laura D. Hatcher, U.S. Department of Justice, for the United States.
Companies: Sabre Corp.; Sabre GLBL Inc.; Farelogix Inc.
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