UK CMA blocks Sabre-Farelogix merger

Update 9 April: The UK Competition and Markets Authority (CMA) has blocked the proposed merger of Sabre and Farelogix despite a US court judge ruling in favour of the acquisition earlier this week.

According to the CMA, phase two of its investigation into the transaction found “that Sabre’s purchase of Farelogix could result in less innovation in their services, leading to fewer new features that may be released more slowly”.

It also raised fears that fees for certain products might go up, leaving airlines, travel agents and UK passengers “worse off”.

Martin Coleman, chair of the CMA’s inquiry group, said: “The products and services that Sabre and Farelogix provide ultimately affect many passengers flying in and out of the UK. The two companies are helping drive technological change in this industry and we are concerned that the merger will see airlines and their UK passengers miss out on the benefits from continued innovation.

“We recognise that our decision in this inquiry comes at a time of uncertainty and disruption in the global travel industry due to the Covid-19 pandemic. It remains important that we protect competition among businesses that provide services to airlines and the benefits such competition can bring for airlines and passengers. We never take decisions to block mergers lightly and in this case the evidence of harm is clear.”

The CMA said its jurisdiction is to protect UK consumers and that its processes, and grounds for assessment, “are different to those in the USA”, hence its decision to block the deal despite it being cleared overseas.

Kristin Hays, Sabre’s vice president of global communications, commented: “We are disappointed by the Competition and Markets Authority’s findings, particularly in light of the United States federal court’s ruling, which found that Sabre’s acquisition of Farelogix is not anti-competitive and should not be prohibited.

“We are reviewing the CMA’s findings and will carefully consider our options.”

A US district court judge has ruled in favour of Sabre in the Department of Justice’s lawsuit against the company’s merger with Farelogix.

Judge Leonard P Stark from the US District Court for the District of Delaware issued his decision under seal, meaning it is not yet available to the public, though Sabre has since issued a statement on the ruling.

“This federal court ruling supports our view that the Sabre-Farelogix acquisition is not anti-competitive. We appreciate the consideration the court gave to these important issues,” said Kristin Hays, Sabre’s vice president of global communications. “We now await a final decision from the UK Competition and Markets Authority (CMA), which previously stated that it has ‘provisionally decided that prohibition of the merger represents the only effective remedy’ to its competition concerns. We expect to receive the CMA’s final decision later this week.”

The CMA has suggested that it could block the merger, which would pose a problem for Sabre and Farelogix. At the time, the chair of the CMA’s inquiry group, Martin Coleman, said the watchdog was worried the acquisition could stifle innovation in the airline retailing space and ultimately lead to airlines and their passengers missing out on the benefits of new technology, such as NDC.

Sabre has always argued that it does not compete with Farelogix and in fact would use the acquisition to increase innovation. The company has offered to make concessions to appease the CMA’s concerns, including making the Farelogix Merchandising system agnostic for use with other passenger services systems, retaining the current pricing structure, service levels and investment in Open Connect, and allowing existing customers to extend their contracts on the same terms for at least three years.

The CMA has a 12 April deadline to publish its final decision, though Sabre said it expects this to be released on Thursday this week.

The Covid-19 outbreak, however, has broadened Sabre's challenges with the acquisition beyond the regulatory. The deal comes with a US$360 million price tag in a time that the global travel industry is paused. According to analysis published by BTN Europe sister publication The Beat, Sabre had US$436 million in cash on its balance sheet at the end of last year and has withdrawn an additional US$375 million in credit, not counting what additional aid that could come from a federal relief package. Even so, with travel industry recovery from the coronavirus outbreak projected to take years, the cost to acquire Farelogix might be too steep at the moment.

It will come with a cost either way, as Sabre faces up to US$25 million in break-up fees should the acquisition not go through by its 30 April deadline.