A US federal antitrust lawsuit brought by US Airways against Sabre is still on its path to a jury trial in New York.
An April meeting has been set to schedule dates for the trial. US Airways alleges that Sabre broke the law and attempted to have a monopolistic hold over travel agents.
In January the judge trimmed US Airways's lawsuit. The airline appealed her decision.
On Monday, documents were unsealed that showed that the airline's appeals fell on deaf ears. Possible damages remain trimmed to between $45 million and $73 million -- far less than what US Airways had sought.
Yet those amounts could be tripled if a jury believes Sabre violated antitrust laws.
Nobel-prize winner
US Airways enlisted expert testimony from Joseph Stiglitz, a recipient of the Nobel Prize for Economics, a professor at Columbia University, and the author of a few best-selling economics books.
It considers Stiglitz to be one of its strong poker hands.
It may be right. In her order, released on Monday, Judge Lorna Schofield agreed that the written testimony from Stiglitz
"provides an ample theoretical basis to conclude that Sabre's contractual restraints could have an adverse effect on competition."
She wasn't siding with US Airways, but was saying instead that the argument merited discussion in court. In her words:
"Professor Stiglitz opines that Sabre’s market power enables it to force the Contractual Restraints on US Airways and the other legacy carriers. He illustrates Sabre’s market power over the legacy carriers in four ways: insistence, market share, price discrimination and supra-competitive prices.
First, because nearly 90% of travel agencies in the United States single-home [meaning, they use just one GDS to obtain all flight information for multiple airlines], GDSs are able to insist that airlines use their services, and accept their contractual terms, lest the airlines lose out on the business of travel agencies that exclusively use a particular GDS.
Second, Sabre has significant market share – about half [ranging year to year between 49% and 52%] of the market for corporate travel bookings [in the US].
Third, Sabre engages in price discrimination by charging different fees to different airlines, even though its costs of servicing each airline are not materially different.
Fourth, Sabre imposes supracompetitive fees."
The judge partly accepted the plausibility of Stiglitz's argument by the modest standard of meriting a jury trial. She summarized the airline's arguments related to travel agent monopoly this way:
"To help ensure loyalty, the GDSs pay travel agents “incentive payments” to use their GDS services.
From 2006 to 2012, for example, Sabre paid more than $1.2 billion in incentive payments to the top four bricks-and-mortar travel agencies, which are responsible for almost 89% of air travel bookings for the top 100 corporate travel accounts.
Without the incentive payments, most traditional travel agencies would be unprofitable."
Elsewhere in her order, the judge summarized the airline's arguments this way:
"US Airways’ evidence of supracompetitive prices consists of the following:
(1) Sabre charges a much lower booking fee to Southwest, a “leisure” airline, which is outside the relevant market and over which Sabre does not exercise market power;
(2) Sabre’s prices result in “economic profits,” or returns after compensating the firm’s owners for the cost of capital, in excess of 35%, sometimes exceeding 75%; whereas in an efficient market they allegedly should be 0%;
(3) the booking fee Sabre charges US Airways has consistently increased since 2006, even while Sabre’s cost per transaction has decreased due at least in part to advances in technology; and
(4) Sabre’s marginal cost is lower than what it charges US Airways per segment, resulting in an operating margin of more than 670%."
Sabre's response
Sabre has made a variety of legal arguments in its defense. But its most plain-English response can be found in a separate financial regulatory filing earlier this month, when Sabre said:
"With respect to all of the remaining claims in this case, we believe that our business practices and contract terms are lawful and fair, and we will continue to vigorously defend against the remaining claims."
In court, Sabre asserts that there is no “overcharge,” because US Airways merely seeks to pass on the cost of the Sabre booking fee to travel agencies, and ultimately, to consumers. The airline has not shown that the fee would be any less in the but-for competitive world contemplated by Professor Stiglitz.
Among other things, Sabre argues that US Airways has failed to identify actual excluded competitors as a result of its practices.
It says the failure of a fourth GDS, such as G2 Switchworks and ITA Software, to rise up to compete with itself, Amadeus, and Travelport is that those companies would have failed for competitive reasons (G2 and ITA later sold to Travelport and Google, respectively).
Sabre also argues that US Airways has failed to produce “non-speculative evidence” from which a reasonable jury could conclude that costs to consumers would decrease if US Airways were able to steer travel agents away from booking through Sabre.
Sabre says, too, that its contract provisions are pro-competitive because they ensure that all consumers are able to see the lowest-price fares across all networks, making comparison booking easy through a one-stop solution.
GDSs also enable efficient searching by travel agents and reduce the time spent to make and change reservations. It argues that GDSs work in parallel, but that doesn't imply a conspiracy.
Partly in agreement with the above points, the judge denied US Airways the chance to try to force changes to Sabre's contracts and, in effect, the airfare distribution business model, according to the documents.
That was a win for GDSs globally. If Sabre been forced to modify its contract language, the other two giant GDSs -- Amadeus and Travelport -- might have felt compelled to make similar changes.
Family feud
The spat is like a fight among relatives. American invented Sabre and spun it off many years ago. Perhaps outside intervention will save the relationship.
In April, parent company AMR expects to start combining the operations of its American and US Airways operations into a single carrier. It was in the first quarter of 2014 that American and US Airways consolidated their contract on Sabre’s Travel Network, which cost Sabre a little more than a point of growth, according to a Sabre earnings call.
Two years ago, AMR settled out of state and federal courts with Sabre for a similar, though not identical, lawsuit. Tnooz deduced that the amount was $280 million.
Sabre remains subject to a US Department of Justice antitrust investigation relating to the pricing and conduct of the airline distribution industry. It has received a civil investigative demand from the DOJ and says it is fully cooperating.
NB:Image of Stiglitz courtesy pasokphotos via Flickr/Creative Commons