Q: In mid-August, the Department of Justice (DOJ) filed suit against Sabre to block its $360 million acquisition of Farelogix, the aggregation company that uses IATA's New Distribution Capability (NDC) to provide connections to airlines outside of the GDS. Does the suit have any merit, and do you think the DOJ will succeed in blocking the acquisition?
A: The suit has no merit and reflects the DOJ's lack of understanding of the travel distribution business. It casts Sabre as a technologically backward giant that wants to acquire a heroic little innovator in order to maintain overwhelming dominance.
It states that Farelogix "represents a significant and growing threat to Sabre's dominance," which is absurd because Farelogix is a tiny company that has been struggling for many years and has about 1% of Sabre's volume. Without Sabre's proposed acquisition, the future of the company is probably in doubt because airlines do not provide travel agencies with meaningful incentives to use its services.
Parts of the DOJ's 21-page complaint read like a commercial for Farelogix, leading me to think that it was at least partly drafted by outside parties.
For example, "Farelogix has succeeded where others have failed through persistence and a commitment to innovation. ... Farelogix has led the development of NDC, a next-generation data transmission standard that facilitates advanced communications between airlines and travel agents."
The DOJ alleges that "the industry is approaching a tipping point that threatens Sabre's business model." As an attorney who advises travel agencies about GDS and NDC-aggregation company contracts, I know that no such tipping point is even a remote blip on the horizon.
Some of the atmospherics of the case look bad for Sabre. For example, the DOJ's complaint quotes a cellphone text from a Sabre sales executive to a colleague stating that one major U.S. airline would "hate" the acquisition. The colleague replied, "Why, because it entrenches us more?" The Sabre sales executive responded that Farelogix has been that airline's "Trojan horse to [mess with] us" and observed that the airline's "FLX [Farelogix] bill is going up big time."
So, the DOJ claims that this quotation proves that Sabre's motive is anti-competitive: "If allowed to proceed, Sabre's acquisition of Farelogix would likely result in increased prices, reduced quality and less innovation for booking services, causing substantial harm to airlines and American travelers."
The truth is that Sabre, Travelport and Amadeus have decided that they need to incorporate NDC into their offerings because NDC enables them to offer more airline features and benefits than traditional GDS technology does. Sabre has chosen to incorporate them through an acquisition.
Rather than "increased prices, reduced quality and less innovation," it is easy to see how the acquisition could result in the opposite. Airline booking fees could come down, and the GDS vendors could offer services that only NDC can provide, such as fares tailored to individual travelers.
The case will be decided by a judge in federal court in Delaware, who will be able to see through the Farelogix propaganda and the Sabre salesperson's bluster.