US Airways and American Sue Reservation Systems on Monopoly Claims

I’ve been following the fighting between American and the global distribution systems (GDSs) fairly closely here, but I’ve yet to comment on the latest development. First, American decided to sue Travelport, but the big news is that now other airlines have decided to jump in. US Airways is suing Sabre, and this comes after the airline had just signed a long term renewal agreement with that GDS. What gives? The backstory is better than a soap opera.

US Airways Claims Sabre Monopoly

If you need full background on this saga, I’d suggest starting with this post on why American wants to go around the GDSs. In short, to reach a huge chunk of customers (primarily corporate travelers), the airlines have to sign participation deals with each of the three GDS companies in the US. The airlines are now saying that the GDSs are holding them hostage because the GDSs are the gatekeepers to this large group of travelers and there’s no way around them and their monopolies. It’s a compelling argument. Let’s look at the US Airways suit more in-depth.

Recently, US Airways signed a multi-year deal for Sabre to sell its flights to all its travel partners. It was clear that US Airways was unhappy about this from the beginning. It responded to Sabre’s press release on the deal with a terse statement that it “disclaims any characterizations by Sabre of US Airways’ views of Sabre, Travelocity, or US Airways’ relationships with those companies.” What did it object to? Probably that “US Airways recognizes the value of the Sabre global distribution system and our innovative leadership in helping airlines market and sell their products.”

Now we know that a lawsuit was in the works. The story is a fairly simple one, and it shows an airline that had no choice but to sign with Sabre even though it clearly was unhappy with the terms of the deal.

Why do I say US Airways had no choice? Well, an incredible 35 percent of US Airways’ revenue comes in via Sabre. While some of this could be replaced since it comes in from online travel agents that have plenty of alternates, the biggest and most important chunk comes in from corporate travel agents that use Sabre as their sole booking source. Corporate travel is the lifeblood of most airlines since it’s full of frequent, high dollar customers. But much of corporate is done through corporate agencies and 85 percent of those agencies are locked in to a single GDS.

As we know by now, booking through these reservation systems can be expensive, and so airlines like American have been proactive about trying to pitch a “direct connect” solution that would bypass the GDS and save a boatload of money. Beyond saving money, it would allow the airlines to sell more than just a seat with things like premium seats, priority check-in, etc. But that’s just the tip of the iceberg. Not being dependent upon the GDSs would allow airlines to get more creative in how they sell in general.

So why can’t they kick the GDS habit? Because Sabre and the other GDSs have travel agents locked in. This is one of those goofy industries where the airlines pay booking fees to the GDS and the GDS then provides kickbacks to the travel agents to keep them onboard. In other words, the GDSs pay their customers to use them. Where else does that happen? With this type of relationship, it’s hard to get the travel agents to stop using GDSs and the GDSs use tactics to make it even harder.

Some GDS relationships require travel agency exclusivity, but even those that don’t still threaten to take away the kickbacks if the agencies start using other sources. The result is that no agency in its right mind would walk away when money is flowing in the door.

So why don’t the airlines just start paying the travel agents some of that money directly? They’ve tried. Back in 2005, for example, America West tried to offer agents a commission if they booked on the America West website. Sabre flipped out and increased rates twice in three months for those bookings that came through Sabre. America West couldn’t get all agents on Sabre to switch overnight, so the ones that remained on Sabre became so expensive that the airline had to back down.

Since Sabre holds such a large chunk of US Airways’ revenue, it’s impossible for US Airways to walk away. Because of that, Sabre can effectively demand anything it wants. And it does. US Airways had this to say about its most recent negotiations with Sabre in the suit:

Sabre’s monopoly power was witnessed most recently in its efforts to force US Airways to enter into a new contract with Sabre that contains numerous oppressive and
anticompetitive terms designed by Sabre to harm competition and entrench Sabre’s dominance. US Airways had no choice but to sign the agreement, which it did under protest, or face a complete shut off from Sabre’s network.

So what were these terms? We don’t know all the details, but there are some that are pretty clear. The biggest issue is that Sabre requires “full content” provisions in its agreement. In other words, any fares offered by US Airways in any distribution channel must also be provided to Sabre. You probably remember that there were a lot more web fares in the early days of online booking, but ever since this full content provision has been thrown in there, those have effectively disappeared. US Airways, along with every other big US airline, has no way to offer discounted or special rates on its website anymore, because Sabre and the other GDSs won’t sign an agreement without that provision.

In the latest negotiation, US Airways offered to pay a higher booking fee in exchange for the elimination of the full content provision, but Sabre declined. This full content provision is like a noose. It not only prevents the airlines from offering different fares on its website, but it even prevents the airlines from doing things that the GDSs can’t handle.

For example, when US Airways launched its Choice Seats program which allowed customers to pay a fee to sit in a better seat, Sabre couldn’t handle the functionality. Because it couldn’t handle the functionality, it tried to block US Airways from selling Choice Seats through any channel because of this “full content” provision.

As you can see, US Airways and the other airlines are stuck. So now it’s time to head to court to get the feds to agree with them that this is monopolistic behavior. Back in 2004, the feds had originally deregulated the GDS industry and that’s when this problem started. US Airways and American cite several examples of bad things that the feds warned were possible at the time. Now that they’re proving to be true, the GDSs are finally getting challenged. It’s now up to the courts to decide if this is unfair or not.

As you can imagine, the GDSs deny everything. They say this is a smokescreen that is really an effort limit customer choice and are trying to portray themselves as the heroes of the customer. I personally just don’t see it. Take a look for yourself.

If you want to see the US Airways case, it’s in the Southern District of New York as case 11 CV 2725. Update: Here’s a copy of the US Airways complaint. American’s filing can be found here.

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47 Comments on "US Airways and American Sue Reservation Systems on Monopoly Claims"

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Bob K.
Guest

Great article Cranky, but you, uh, might want to fix the headline there. Took me a few minutes to figure out that “Sure” really meant “Sue”.

Nick Barnard
Member

I’m waiting for the endgame on this one. But its pretty crazy that the airlines want to offer the ability to buy all the addons up front, in as clear a manner as possible, and Sabre can’t.

Sabre just seems to want to be a dinosaur drag the whole damn industry down… In the words of the commentator from Airplane! “I say, Let em die.”

Ace_dc
Guest
Ha, memory in this industry is such shortlived. When airlines owned the GDS’ (American/Sabre, Delta/Worldspan, United/Apollo, etc.) there was never any issues like this for obvious reasons. But this was when the business model was set and travel agents were using the technology. However, when airlines sold the GDS for cash, they obviously didn’t have enought foresight to see that this would potentially be a problem when the GDS was forced to make it on its own. Frankly, I see this “sour grapes” approach by airlines in several areas. Mainly by the US airlines that tried to grab easy cash… Read more »
Nick Barnard
Member
Well, last I checked the airlines didn’t get bailouts. The last outright money they got from the feds was after September 11 as compensation for being grounded and forced out of business for several days. E.g. the business continuity equivalent of eminent domain. Sure they got some loan guarantees, but AFAIK they paid for that.. Besides, I hate the term bailout. For most of the financial industry it was a loan of last resort, and the tax payers have made money off most of the loans individually, and are in sight of making money off of it as a whole..… Read more »
DAB
Guest

The bankruptcy law itself in the US is so heavily skewed towards keeping airlines specifically as a going concern that use of the law itself constitutes a bailout for the company (management…). Other industries do not receive the protection or leeway that the airlines get.

Nick Barnard
Member

Oh, and the Airlines are innovating! So you can’t say the same about them.

Sabre? I don’t see that they are, or they wouldn’t be trying to milk this revenue cow for all its worth.

David SF eastbay
Member

Why hasn’t some company started a web base airlines reservation system that all airlines would sign up for and move away from Apollo/Sabre/Wspan?

With web base they could sell things the way they want like on their own websites, and not have to follow the GDS platform/formats that haven’t changed much since they were first designed.

Evan
Guest
There are solutions outside of GDS, but there’s a business model problem here. Airlines pay GDS to distribute, GDS pay agencies for the business. Everyone wins. Airlines now say they want to go straight to agencies and pay less. Do agencies want this? Not necessarily. Because the status quo works reasonably well and they’re afraid the money flow will dry up (a valid concern since airlines want to pay less). Additionally, we’ve got a technology issue where agencies are tapped into GDS for everything and they can’t exactly switch to another solution en mass. There are hundreds of thousands of… Read more »
Dan
Guest

Sounds like my consumer choice really got limited when the GDS went with those “full content” provisions. The GDS’s shouldn’t be forcing me to buy more expensive tickets, but that’s the end result when the airlines can’t offer discounted web-only fares because of their lower distribution costs.

Sanjeev M
Guest

Where does Southwest fit in this? I know they do some corporate SWABIZ stuff on some GDS (which one?) but the regular stuff is only on southwest.com.

Shane
Guest

This is a lot like iTunes and iPhones where apple is now demanding a larger commission on iTunes purchases as well as purchases from within apps. It’s kind of a chicken and egg question with both Apple and GDS: do people purchase the product because it is on the platform or do people go to the platform to get the product.

gtrjay
Guest

Good call. However, some bands/artists can and have pulled out or refused to have music on Itunes. Bands such as AC/DC, Kid Rock, Eminemn, Metallica and more all feel buying the entire CD/Album is what they want and they feel their music is best as a whole and not as ‘singles’. I can see both sides, but in the end the marketplace will decide or people will steal for free online.

gtrjay
Guest

Cranky! This was a great read and really helped to shed some light on the airlines side of things. How about a cranky jackass award for Sabre and the GDS in general? They seem very worthy of it!

AlexT
Guest
@Dan, Consumer choice was definitely not limited by “full content” provisions. Consumer choice was simplified by full content. Now if you go online, call the airline or call a travel agency you get transparent pricing. the 35% of consumers that purchase through Sabre aren’t getting cheated by the airline trying to sell their product through discount channels. The other 3 major GDS constitute another 55% of distribution. Full content provisions are protecting those consumers and travel agencies from being unfairly abused by ailrines. The airlines are the entities that are seeking to monopolize the distribution channels for products so they… Read more »
NM
Guest
Don’t be naive, you aren’t paying more because of the GDS full content agreement, the airlines aren’t making as much as they want to that’s what this is about! They use their “concern for the consumers” to get the public onboard with what they want to do and it works everytime. They have never passed a penny of any savings on to the customer before and they won’t now. What they want is to be able to charge you for lots of additonal items but are being inhibited from doing it so they’re going legal to get what they want.… Read more »
Ryan
Guest
You actually sound like you’re the one whining. A little bitter about airlines trying to make some money? Do you have any proof that airlines don’t pass on any savings to the customer? Otherwise you’re just making an assumption that airlines are only caring about this issue because they are trying to save a couple dollars per booking. It appears they are more concerned with their limited ability to display fares and other options. As a customer, having more choices is better, whether you agree with those choices or not. You can complain about all the extras airlines charge for,… Read more »
Nick Barnard
Member

NM its laughable that you’re complaining about airlines not passing on a penny of savings in a business that is barely profitable. Airlines aren’t making money hand over fist. Period.

Dan
Guest

Well, if the airlines can offer a lower price directly from their website, they would. And that means I as a general consumer can get a cheaper price. And if they jack the prices up through the GDS distributed fares and it happens to help make the airlines money, then so be it. It’s not my fault that corporate travel departments are married to those things, and I shouldn’t have to pay for it.

Sylvia
Guest
I find this to be a very one-sided picture of the issue. True, the GDS’s have a lot of power, but as an agent, first, I can tell you that GDS’s hardly pay agents a kickback – basically, the “kickback” as yoy call it, is the fact tht we don’t need to pay the GDS’s to book airlines, which to begin with, is absurd, considering we are slaves under these airlines in any case. Secondly, with all due respect, none, but none of the on-line websites offer the back-end that we see in the GDS’s – that is, how many… Read more »
Dan
Guest
Sylvia, When I was in grad school, I did some analysis of the government’s 2007 market fare data. Although you raise some good points, the customers who need that service are by far the exception to the rule. Off the top of my head, from the data, about 50% of the tickets sold were for single-segment roundtrip tickets. That is, the passengers made no connection. About 48% more made an online (no change of carrier, except for the express/major affiliates) roundtrip with a single connection. That means about 2% of the passengers had multiple connections or had a change of… Read more »
Jim
Guest

In my opinion, the simple fact that Southwest Airlines exists is proof that the allegations of monopolistic behavior on the part of the GDS are nonsense. The airlines are free to dump the GDS and sell tickets however they want. Just because the airline has become dependent on the GDS doesn’t mean that there is a monopoly. I looked through AA’s complaint (the link to the US complaint doesn’t work, btw), and it just sounds like they are whining and trying to get sympathy for the position they have gotten themselves into.

J Bird
Member

The GDS’s are no different than what American Express does with it corporate credit card. As soon as the GDS’s go away and don’t give the kick back to the corporate travel department, the corporate travel departments are going to start negotiating directly and getting discounts off of the full fare ticket.

Ace_dc
Guest
Took your advice and read the US Airways filing. I must say that I am not surprised by anything in it. It is (as all these are) deliberately skewed to the Plaintiff, but that is understandable. I come back to the same question. If it is so bad, why doesn’t US just quit signing the contracts? Sure, short term pain in doing so. But in the end, wouldn’t customers adjust? If it truely is, as the claim states, US Airways’ product that is creating GDS revenue, I am sure someone would jump to help them out. It just seems evident… Read more »
malbarda
Member
I work for a really big corporation and we use one of those well known corporate travel agencies. Nice people when you speak with them on the phone, but as a globe trotter I tend to know more then they do about connections and alternatives. Lately, as a result of ever higher and higher prices, we have started to book direct with airlines through their own websites. We start by using Kayak to check options, and then book stuff direct using the corporate credit card. That way, I have found that I can save up to $ 1,500 on business… Read more »
toronto landscaping blog
Guest

I think this type of lawsuit is silly. In any business we are subject to other more powerful businesses and corporations and fall subject to their standards.