The U.S. travel technology firm Sabre may not ring an immediate bell, and perhaps you’ve not yet heard of its proposed acquisition of Farelogix, but it looms as one of the most important antitrust cases to approach trial since AT&T/Time-Warner.
The transaction’s most significant aspect is the way in which it offers a perfect illustration of overzealous bureaucratic antitrust enforcement, and the way that can delay and also punish American consumers.
Specifically, the transaction enhances rather than inhibits market competition, and will benefit both travelers and the travel industry by accelerating innovation. That’s in part because Sabre and Farelogix aren’t head-to-head market competitors, but rather complementary businesses. While Sabre serves customers throughout the industry – such as travel agencies, travel management companies and travel providers – Farelogix serves only a limited number of airlines. Additionally, Farelogix remains small and growth-constrained, with only $7 million in revenues generated in the U.S. last year via its most important product offering, Open Connect.
Furthermore, Farelogix’s technology is based on the “New Distribution Capability,” a non-proprietary standard that dozens of companies as well as airlines already use. In its roughly 10 years of existence, Farelogix has been unable to gain meaningful traction in the airline industry. This is due to Farelogix’s demonstrated inability to scale its offerings, its position as simply an IT input among numerous competitors, and the growing industry realization that its product cannot substitute for the suite of services GDSs, like Sabre, provide.
In contrast, Sabre possesses the scale and resources to better leverage Farelogix’s products and talent to the benefit of both companies’ customers and travelers more generally. By acquiring Farelogix, Sabre can maximize value and convenience to its airline and agency customers and accelerate the delivery of a comprehensive platform for retailing and distribution that will drive competition and offer a high-value product for all customers.
Accordingly, considering the challenges and costs associated with those beneficial and critical objectives, the proposed acquisition shouldn’t be needlessly and unfairly delayed from improving the travel marketplace.
Unfortunately, the Department of Justice (DOJ) in its misplaced complaint bungles several important details.
For instance, contrary to the DOJ’s assertion, Sabre doesn’t seek to “kill” Farelogix. To the contrary, Sabre has repeatedly committed to maintaining current pricing, service levels and investment for existing Farelogix products. The DOJ also gets it wrong in labeling U.S.-based Sabre the “dominant” company in the industry, as Spanish rival Amadeus is significantly larger and already possesses the NDC-based capabilities that Sabre hopes to acquire from Farelogix. The DOJ also erroneously defines the relevant market in domestic terms only, because these companies operate in what is a decidedly global marketplace, with providers servicing customers worldwide, regardless of geography.
So why does the DOJ hope to prevent Sabre from acquiring and investing in the same capabilities as its larger Spanish rival – capabilities that must be scaled in order for the industry to satisfy consumers’ needs? Sabre’s focus remains driving change, not entrenching the status quo. Sabre’s CEO once ran Frontier Airlines, and has spent the past three years transforming Sabre into an agile, modern business. The proposed Farelogix acquisition is a critical part of that effort.
The DOJ has stubbornly and illogically opposed previous complimentary mergers, like AT&T/Time-Warner, and lost. They should expect the same outcome here.
Hopefully, the DOJ considers the facts before it repeats similar missteps, and needlessly penalizes global travelers in the meantime. It shouldn’t remain stuck in the past while attempting to keep travel consumers stuck there with them.
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