US Airways files antitrust lawsuit against Sabre
Seeks to end Sabre’s monopoly pricing power for airline ticket distribution and cites Sabre’s anti-competitive and anti-consumer behavior
TEMPE, Ariz., April 21, 2011 – US Airways (NYSE: LCC) today filed a federal civil antitrust lawsuit in the Southern District of New York against Sabre Holdings Corp. to halt anti-competitive and anti-consumer practices, as well as recover monetary damages.
According to the complaint, Sabre, which is a dominant distributor of airline fares and content to travel agents, has engaged in a pattern of exclusionary conduct to shut out competition, protect its monopoly pricing power, and maintain its technologically-obsolete business model. US Airways contends that Sabre has wielded its significant market power and control through exclusionary commitments from travel agents and other Global Distribution Systems (GDSs), as well as through anti-competitive requirements placed on US Airways and other airlines in order to sell their tickets. All of these actions by Sabre hurt consumers through higher prices, reduced innovation, and fewer choices.
Sabre’s monopoly limits competition and hinders innovation
Sabre is the largest GDS in the United States and exercises enormous market power over airlines, including US Airways. Over 35 percent of US Airways’ revenue is booked through Sabre and Sabre affiliated travel agents. Sabre structures the distribution model so that travel agents, whether they are a traditional travel agency or one of the large online travel agencies that many consumers use directly on the Internet, are typically forced to rely on a single GDS to book airline tickets on behalf of their customers. According to the complaint, Sabre imposes significant economic penalties on travel agents relating to bookings not made using Sabre. If Sabre excluded US Airways from its offerings to its travel agents, those agents could no longer book US Airways tickets through Sabre. US Airways would not be able to survive the subsequent loss of revenue. Given this disproportionate market control, US Airways is forced to accept Sabre’s monopolistic practices.
Today’s lawsuit follows after the recent execution of a new distribution agreement between Sabre and US Airways, which was reached in late February 2011. During negotiations with Sabre, US Airways made it clear to Sabre that it sought a new contract without exclusionary restrictions that protect Sabre from competition. However, Sabre threatened to shut-off access to US Airways if the new agreement did not include these anticompetitive restrictions. According to the complaint, US Airways was forced to acquiesce to Sabre’s “my way or the highway” demands as a part of any new deal.
The complaint also alleges that Sabre has been aggressive in suppressing the ability of travel agents to book tickets directly with airlines using so-called "direct connections.”
US Airways fully expects that its lawsuit will not disrupt the display or distribution of US Airways tickets on Sabre during the litigation.
Incentive structure for travel agents creates barriers to entry
Sabre’s fee structure for travel agents further lessens competition in airline ticket distribution. The complaint alleges that Sabre increases barriers for competition by providing a portion of the fees it receives from airlines to travel agents. As detailed in the complaint, in order to receive the highest financial incentive, Sabre effectively forces Sabre travel agents to work with Sabre, which prevents the travel agents from working more closely and collaboratively with other distribution alternatives. Sabre has further engrained itself in other aspects of travel agencies, such as fulfillment and billing functions, which creates further barriers for the growth of better, more cost-effective distribution alternatives.
Sabre’s high fees and antiquated technology do not reflect a competitive market
US Airways pays Sabre so that Sabre affiliated travel agents can book tickets on US Airways. Across the board there have been advances in technology and communications, and a corresponding decline in those costs, yet the cost of doing business with Sabre remains artificially inflated.
“The airline industry and other technology services providers have become more efficient, yet Sabre’s conduct has enabled it to charge inflated prices with outdated technology that was developed before the Internet existed. Lower-cost, more technologically-advanced alternatives and innovative fare products are being shut out by Sabre’s actions,” said US Airways President Scott Kirby.
Sabre’s monopoly power is anti-consumer
Sabre’s conduct harms US Airways and consumers in several ways, including increasing pricing for airlines and travelers, stunting the growth of more-cost effective and technologically-advanced alternatives, and reducing choice by obstructing or delaying the distribution of innovative fare products. For example, prior to Sabre using its monopoly power to enforce full content agreements, US Airways frequently offered more favorable web only and other promotional fares at discounted levels through select distribution channels. US Airways alleges that Sabre's full content requirements effectively have eliminated US Airways’ ability to offer these types of fares and resulted in increased ticket prices for consumers. As stated in the complaint, Sabre, for some time, also threatened to block US Airways’ Choice Seats program from being offered through other distribution channels. US Airways contends that Sabre’s conduct and technological limitations effectively have delayed the introduction of products like US Airways’ Choice Seats program on Sabre.
“US Airways wants to be able to widely distribute its products and services to consumers in a cost-effective and efficient way, but Sabre continues to erect roadblocks to this goal. US Airways and travelers would see enormous benefits if Sabre had to compete on a level playing field,” said Kirby.
Both the Antitrust Division of the United States Department of Justice and the United States Department of Transportation have, in the past, recognized that Sabre exercises significant market power over airlines like US Airways.
About US Airways
US Airways, along with US Airways Shuttle and US Airways Express, operates more than 3,200 flights per day and serves more than 200 communities in the U.S., Canada, Mexico, Europe, the Middle East, the Caribbean, Central and South America. The airline employs 32,000 aviation professionals worldwide and is a member of the Star Alliance network, which offers its customers 21,000 daily flights to 1,160 airports in 181 countries. Together with its US Airways Express partners, the airline serves approximately 80 million passengers each year and operates hubs in Charlotte, N.C., Philadelphia and Phoenix, and a focus city in Washington, D.C. at Ronald Reagan Washington National Airport. US Airways was the only airline included as one of the 50 best companies to work for in the U.S. by LATINA Style magazine’s 50 Report for 2010. For the sixth year in a row, the airline also earned a 100 percent rating on the Human Rights Campaign Corporate Equality index, a leading indicator of companies’ attitudes and policies toward lesbian, gay, bisexual and transgender employees and customers. US Airways also ranked #1 among its competing hub-and-spoke network carriers for 2010 performance as rated by the Wichita State University/Purdue University Airline Quality Rating (AQR) report.