Why the Feds Want to Block a Flight-Booking Software Deal

Airline-booking software is the kind of back-office technology that seems like the last thing to attract the attention of antitrust regulators. But airlines complain that the US industry leader, Sabre, is opaque, frustrating, and sometimes slow-moving. So maybe it shouldn’t be a surprise that the US Department of Justice filed suit last month to prevent Sabre from acquiring a competitor.

The lawsuit, brought last month in Delaware, would prevent Sabre from acquiring the newer Florida-based travel tech company Farelogix, for $360 million. Sabre has been around forever—well, since the 1960s, when executives at American Airlines wanted to build an automated reservation system for booking flights. (Sabre spun off from American Airlines about a decade later, and is now a publicly traded company valued at $6.4 billion.) More recently, government lawyers say, Sabre has “resisted innovation” and charged airlines and customers high prices for its middleman products. The attempt to acquire Farelogix, these lawyers write in their complaint, is also an attempt to stamp out competition.

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Sabre is a kind of unseen middleman. Even if you fly a lot, you may not have heard of it. The company, along with others that serve as “global distribution systems,” provides the booking services that let airlines package and distribute fares to travel agencies and some online booking platforms. (The two other biggies are the Spanish company Amadeus and the British company Travelport).

Your favorite Google Flights addict may not believe it, but about a quarter of airlines’ bookings are still made through traditional travel agencies. These “lower tech” flyers are actually very nice ones to have. Business travelers, who are valuable for their consistency and easily swiped credit cards, often use agencies because they need more intensive customer service. More than half of travel agencies’ bookings come through Sabre, prompting airlines to work with it.

Sabre has a nice hold on the online bookings business, too, which accounts for a fifth of US airline bookings. About half of those bookings are made through Sabre.

Sabre’s software is not always the most flexible, though, which can be frustrating for airlines. The friction has intensified since around 2012, as more airlines began offering à la carte services, like priority boarding, extra-legroom seats, meals, in-flight Wi-Fi, and baggage fees. As anyone annoyed about shelling out extra cash for, say, a carry-on bag might well know, this “ancillary service” market is a fast-growing cash pull for airlines; one market research company expects those airline extras to grow from $93 million a year today to $412 million by 2027. That’s no small feat for an industry that runs on extremely tight margins.

Sabre was slow to offer airlines an easy way to book these services. So companies like Farelogix have attempted to fill the gap, offering airlines slick and easy-to-use software that lets them give agencies more things to sell. In fact, the Florida firm was a main proponent behind a new data standard that lets airlines offer more varied packages. Sabre, on the other hand, took about half a decade to catch up. Now it clearly believes that Farelogix products are something like the future. Sabre announced plans to acquire Farelogix in November 2018, and planned to close the deal last month. After the government filed suit, Sabre said it would delay the closing until April 2020.

The DOJ complaint digs up a few embarrassing text messages from Sabre executives. According to the lawsuit, one texted another the day the acquisition was announced to say that one airline would “hate” it. “Why, because it entrenches us more?” the other allegedly replied. The airline had wanted to use Farelogix as the “Trojan horse to f*** us,” the first executive allegedly explained, but now Sabre would be able to charge that airline more for its services.

Sabre, of course, sees the lawsuit differently than the federal government. The company did not respond to WIRED’s request for comment, but in a statement posted on its website, said it would challenge the DOJ suit. “The DOJ’s claims lack a basis in reality and reflect a fundamental misunderstanding of the industry,” the company says. Sabre says its and Farelogix’s products are complementary, and do not compete with each other.

Sabre also faces scrutiny in Europe, where EU officials said last November that they would investigate Sabre and its competitor Amadeus for antitrust violations. “We may incur significant fees, costs, and expenses for as long as this investigation is ongoing,” Sabre noted in its most recent quarterly earnings report. And you thought riding in the middle seat was annoying—imagine being an airline booking software lawyer.