Case 1:19-cv-01548-LPS Document 277 Filed 04/08/20 Page 1 of 97 PageID #: 6849
`
`COURT
`IN THE UNITED STATES DISTRICT
`
`OF DELAWARE
`FOR THE DISTRICT
`
`UNJTED STATES OF AMERICA
`
`Plaintiff,
`
`v.
`
`19-1548-LPS
`C.A. No.
`
`SABRE CORP.,
`SABRE GLBL INC.,
`FARELOGIX INC., and
`SANDLER CAPITAL PARTNERS V, L.P.,
`
`REDACTED PUBLIC
`VERSION
`(RELEASED APRIL 8,
`2020)
`
`Defendants.
`
`Anis, UNITED STATES DEPARTMENT
`OF
`and Shamoor
`Laura D. Hatcher,
`David C. Weiss,
`Wilmington,
`DE
`JUSTICE,
`
`Aaron Comenetz,
`A. Lepore,
`Robert
`Sarah P. McDonough,
`Scott A. Westrich,
`Julie S. Elmer,
`T. Nash, Jeremy
`Michael
`A. Flipse,
`Rachel
`Dylan M. Carson,
`Craig W. Conrath,
`Brian E. Hanna,
`and Katherine
`Grant A. Bermann,
`John A. Holler,
`Seth J. Wiener,
`Cottafavi,
`Vittorio
`P.Evans,
`Washington,
`DC
`OF JUSTICE,
`UNITED STATES DEPARTMENT
`A.Celeste,
`
`of America
`States
`United
`for Plaintiff
`Attorneys
`
`SKADDEN, ARPS, SLATE, MEAGHER &
`A. Bartholomew,
`and Veronica
`0. Larkin
`Joseph
`FLOM LLP, Wilmington,
`DE
`
`SKADDEN, ARPS, SLATE, MEAGHER & FLOM
`C. Sunshine,
`and Steven
`Tara L. Reinhart
`LLP, Washington,
`DC
`
`SKADDEN, ARPS, SLATE,
`and Evan R. Kreiner,
`H. Menitove,
`Michael
`M. Martino,
`Matthew
`MEAGHER & FLOM LLP, New York, NY
`
`and Sabre GLBL Inc.
`Sabre Corporation
`for Defendants
`Attorneys
`
`

`

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`Case 1:19-cv-01548-LPS Document 277 Filed 04/08/20 Page 2 of 97 PageID #: 6850
`
`Daniel A. Mason, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington,
`DE
`
`Kenneth A. Gallo, Jonathan S. Kanter, Joseph J. Bial, and Daniel J. Howley, PAUL, WEISS,
`RIFKIND, WHARTON & GARRISON LLP, Washington, DC
`
`Attorneys for Defendants Farelogix Inc. and Sandler Capital Partners V, L.P.
`
`OPINION
`
`April 7, 2020
`Wilmington, Delaware
`
`

`

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`Mme
`
`S ARK, U.S. District Judge:
`
`INTRODUCTION
`
`The United States Department of Justice (“DOJ” or “govermnent”) filed this expedited
`
`antitrust action seeking to permanently enjoin the proposed acquisition by Defendants Sabre
`
`Corporation and Sabre GLBL Inc. (collectively, “Sabre”) of Defendants Farelogix Inc.
`
`(“Farelogix”) and Sandler Capital Partners V, LP. (“Sandler”) (collectively with Sabre,
`
`“‘Defendants”). Sabre and Farelogix both play roles, which are described in great detail below, in
`
`the airline travel industry. The government contends that allowing Sabre to acquire Farelogix,
`
`and eliminate Farelogix as an independent entity, would harm competition, and thereby violate
`
`Section 7 of the Clayton Act, 15 U.S.C. § 18. DOJ contends Farelogix is an innovative disruptor
`
`in the market for “booking services,” a market historically dominated by just three global
`
`distribution systems (“GDSs”), including Sabre, who have tried to stifle innovation in a market in
`
`which they earn billions of dollars annually.
`
`The Court held an eight-day bench trial in January and February 2020.
`
`(See D.I. 251,
`
`253, 254, 255, 256, 257, 258, 260, 261, 263, 264, 265, 266, 267) (“TL”)l After the trial, both
`
`sides submitted detailed proposed findings of fact (DJ. 234, 236) as well as opening and
`
`answering briefs (D.I. 233, 235, 241, 242).
`
`Pursuant to Federal Rule of Civil Procedure 52(a), and having carefully considered the
`
`entire record in this case, the arguments of the parties, and the applicable law, the Court
`
`concludes that DOJ has failed to meet its burden of proof. Therefore, the Court will enter
`
`1 “Citations to the trial transcript are in the form: “([Witness last name] Tr. [page]).”
`
`1
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`

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`judgment for Defendants and against the government. The Court will not enjoin Sabre’s
`
`proposed acquisition of Farelogix.
`
`PROCEDURAL BACKGROUND
`
`DOJ filed its complaint on August 20, 2019. (D1. 1) On September 26, 2019, the Court
`
`scheduled a bench trial to begin on January 27, 2020. (D.I. 31) After consideration of various
`
`requests relating to the length of the trial (see, e.g., D.I. 147 at 8, 15 (parties initially asking for
`
`two-week trial within three months of case being filed); D.I. 175 at 2 (parties requesting 30 hours
`
`per side)), the Court ultimately allocated each side up to 25 hours for its trial presentation (see
`
`D1. 197 at 11).
`
`The parties prepared expeditiously and efficiently for trial, raising only two discovery
`
`disPutes. (See D.I. 127 at 2-3) Trial began, as scheduled, on January 27 and was completed,
`
`with a fill] day of closing arguments and questions to counsel, on February 6, 2020.2
`
`2 It should be understood that the Court is issuing this Opinion in the midst of the global
`coronavirus (COVID-19) pandemic. As readers today (i.e., April 2020) well understand, we are
`living through a national emergency, in which courtrooms (although not Courts) are largely
`closed, and most people (including judges, law clerks, lawyers, and assistants) are working
`remotely from home.
`
`As of this writing, it is generally known and can be accurately and readily determined
`from sources whose accuracy cannot reasonably be questioned, that the travel industry, and
`particularly air travel, has been hit particularly hard by the virus. See, e.g., US. Department of
`the Treasury, Procedures and Minimum Requirements for Loans to Air Carriers .
`.
`. under. .
`.
`‘
`the Coronavirus Aid, Relief and Economic Securigz Act (March 30, 2020),
`https://home.treasury. govfsystem/files/ l 36/Procedures%20and%20Minimum%20Requirements
`%20for%2OLoans.pdf (last accessed April 7, 2020); Tr. Mar. 30, 2020 teleconference at 4-5; see
`generally Fed. R. Civ. P. 201. Understandably, however, no evidence was presented at trial
`about the impact of the coronavirus, or how its devastation might itself transform the air travel
`industry. Therefore, and necessarily, the Court has not considered the potential consequences of
`the virus in making its findings of fact or conclusions of law. To be clear, the Court’s forward-
`looking analysis does not (and cannot) take into account the current crisis caused by the
`pandemic.
`
`

`

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`The Court commends all of the many attorneys on both sides for consistently outstanding
`
`performances throughout this litigation and esPecially at trial.
`
`At trial, the government called the following witnesses,3 including many who were
`
`adverse to DOJ’s case:
`
`-
`
`0
`
`-
`
`-
`
`-
`
`°
`
`-
`
`'
`
`-
`
`'
`
`-
`
`-
`
`Cory Garner, Vice President (“VP”) for Distribution and Sales for American
`
`Airlines (“AA” or “American”) (Garner Tr. 89)
`
`Michael Radcliffe, Director of Distribution for United Airlines (“United”)
`
`(Radcliffe Tr. 169)
`
`Susan Carter, Senior VP of Marketing for Farelogix (Carter Tr. 235)
`
`Jim Davidson, President and Chief Executive Officer (“CEO”) of Farelogix
`
`_
`
`(Davidson Tr. 364)
`
`Chris Boyle, VP of Corporate Development and Mergers and Acquisitions for
`
`Sabre (Boyle Tr. 484)
`
`Theo Kruijssen, Chief Financial Officer (“CFO”) of Farelogix (Kruijssen Tr. 585)
`
`Sean Menke, President and CEO of Sabre (Menke Tr. 664)
`
`Gregory Gilchrist, Senior VP Travel Solutions Group for Sabre (Gilchrist Tr. 748)
`
`Jorge Vilches, former Senior VP of Airline Business for Sabre (Vilches Tr. 785)
`
`(by deposition)
`
`Chris Wilding, Senior VP Airline Line of Business for Sabre (Wilding Tr. 824)
`
`Dr. Aviv Nevo, economics expert (Nevo Tr. 878)
`
`Tom Klein, former CEO of Sabre (Klein Tr. 1072) (deposition)
`
`3 All witnesses testified live at trial, unless otherwise noted.
`
`3
`
`

`

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`Christina Larson, Managing Director of Sales Analytics, Distribution, and
`
`Planning for Hawaiian Airlines (Larson Tr. 1108) (deposition)
`
`Jeffrey Lobl, Managing Director of Distribution Strategy, Delta Airlines (“Delta”)
`
`(Lobl Tr. 1148)
`
`Defendants, in addition to essentially conducting direct examinations of many of the
`
`above-listed witnesses during the government’s case-in-chief, called the following witnesses at
`
`trial:
`
`Kurt Ekert, President and CEO of CWT (Ekert Tr. 1178)
`
`Rose Stratford, Executive VP Global Supply Relations and Strategic Sourcing,
`
`BCD Travel (Stratford Tr. 1211) (deposition)
`
`Werner Kunz-Cho, CEO Fareportal (Kunz—Cho Tr. 1280) (deposition)
`
`Tim Reiz, Chief Technology Officer for Farelogix (Reiz Tr. 1320)
`
`Dr. Kevin Murphy, economics expert (Murphy Tr. 1419)
`
`David Shirk, President of Travel Solutions for Sabre (Shirk Tr. 1580)
`
`Rocky Wiggins, Senior VP and Chief Information Officer for Spirit Airlines
`
`(“Spirit”) (Wiggins Tr. 163 8) (deposition)
`
`Tom Gregorson, Chief Strategy Officer for the Airline Tariff Publishing
`
`Company,4 better known as “ATPCO” (Gregorson Tr. 1667) (deposition)
`
`Shane Tackett, Executive VP of Planning and Strategy for Alaska Airlines
`
`(Tackett Tr. 1698)
`
`4 See Carter Tr. 289.
`
`

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`—
`
`Derek Adair, Managing Director of Revenue Management Development for Delta
`
`Airlines (Adair Tr. 1717)
`
`One of the notable features of the trial was the juxtaposition of invariably excellent legal
`
`skill demonstrated by the attorneys combined with numerous witnesses who were not credible
`
`and/or not persuasive on multiple key points, as further explained below in the Court’s findings
`
`of fact.
`
`FINDINGS OF FACT ‘
`
`\
`
`This section contains the Court’s findings of fact (“FF”). Certain findings of fact may
`
`also be provided in connection with the Court’s legal analysis later in this Opinion.
`
`A.
`
`The Parties And Proposed Transaction
`
`1.
`
`The United States Department of Justice Antitrust Division (“DOJ”) enforces the
`
`nation’s antitrust laws, including by challenging proposed mergers ofprivate companies that may
`
`be anticompetitive. See 15 U.S.C. § 25; D1. 1 1] 17.
`
`2.
`
`Sabre Corporation is a Delaware corporation headquartered in Southlake, Texas.
`
`(D.I. 184 (Pretrial Order (“PTO”)) Ex. 1 fl 2) Sabre Corporation is the ultimate parent entity of
`
`Sabre GLBL Inc., Sabre’s principal operating subsidiary and a signatory to the merger agreement
`
`with Farelogix.
`
`(Id. 1] 3)
`
`3.
`
`Sabre’s Travel Solutions division contains its Travel Network and Airline
`
`Solutions business units. (Menke Tr. 679) Travel Network operates Sabre’s global distribution
`
`system (“GDS”). (PTO Ex. 1 1] 5) Sabre’s GDS is the largest in the United States. (PX389 at
`
`-437) Airline Solutions sells other information technology (“IT”) products for airlines, including
`
`a passenger service system (“PSS”). (PTO Ex. 1 ‘fl 7)
`
`

`

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`4.
`
`In 2018, Sabre’s revenues were approximately $3.9 billion. (PTO Ex. 1 ‘ll 9)
`
`Most of Sabre‘s revenues and profits come from GDS booking fees paid by Sabre’s airline
`
`customers. (Menke Tr. 665)
`
`5.
`
`Farelogix, Inc. is a Delaware corporation headquartered in Miami, Florida. (PTO
`
`Ex. 1 11 ll) Farelogix’s majority owner is Sandler Capital Partners V, L.P., a private equity fund,
`
`which is also a signatory to Sabre’s merger agreement with Farelogix.
`
`(Id. ll 12)
`
`6.
`
`Farelogix is an 1]" provider to airlines and offers a range of products related to
`
`distributing and merchandising airline content. (Carter Tr. 261—63)
`
`7.
`In 2018, Farelogix’s revenues were approximately-million. (DX145 at —006)
`_ Farelogix Open Connect, also commonly referred to as “FLX 0C,” generates more than half of
`
`Farelogix’s revenues. (PTO Ex. I ‘ll 19)
`
`8.
`
`On November 14, 2018, Sabre agreed to purchase Farelogix in a transaction
`
`valued at approximately $360 million (the “acquisition,” “merger,” or “transaction”). (PTO Ex.
`
`1 11 l)
`
`B.
`
`Airlines, Content, And Distribution Generally
`
`9.
`
`Airlines sell “content” — tickets and ancillary products and services, such as early
`
`boarding and seat upgrades — directly to travelers through their websites, call centers, and airport
`
`kiosk ticket counters, and also indirectly through travel agencies. (PTO Ex. 1 fl 4, 22; Stratford
`
`Tr. 1215, 1218) “Ancillaries” are “anything beyond the fare.” (Wiggins Tr. 1641)
`
`10.
`
`Distribution through airlines’ proprietary channels is referred to as direct
`
`. distribution, the direct channel, or colloquially, “airlinecom.” (Carter Tr. 240; PX025 at -943)
`
`

`

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`11.
`
`Distribution through travel agencies is referred to as the indirect channel or
`
`indirect distribution. (Gamer Tr. 91-92; Radcliffe Tr. 171)
`l
`12.
`The indirect channel accounts for about 40% ofairline bookings today. (Murphy
`
`Tr. 1430-31)5 The vast majority of indirect channel sales — 95% by passenger volume — are made
`
`through a global distribution system (“GDS”). (Id) The remaining 5% are sales directly
`
`between an airline and a travel agency or corporation (“direct connections”).
`
`(Int)6
`
`13.
`
`Travel agencies can be divided into online travel agencies (“OTAs”) and
`
`traditional travel agencies (“TTAs”), including travel management companies (“TMCs”). OTAs
`
`such as Expedia and Priceline primarily operate through consumer-facing websites and target
`
`leisure customers. (Kunz-Cho Tr. 1281-83) TMCs such as Carlson Wagonlit Travel (“CWT”)
`
`and BCD Travel (“BCD”) manage business travel for corporations. (Ekert Tr. 1178)
`
`14.
`
`For many airlines, travel agencies are a critical sales channel, accounting for a
`
`significant portion of their revenue.
`
`(See Garner Tr. 92 (stating American earns half its revenue
`
`through indirect channel); Tackett Tr. 1703~O4)
`
`15.
`
`Airlines that sell tickets through travel agencies need to communicate with travel
`
`agencies in a format compatible with the agencies’ internal systems. (Garner Tr. 146—47)
`
`5 The specific numbers in this paragraph do not appear in the trial transcript; they were
`shown on Dr. Murphy’s Demonstrative slide number 7, which was marked confidential at trial,
`and therefore alluded to but not discussed specifically in Open Court. Instead, counsel, the
`witness, and the Court looked at their own copies of the demonstrative while the witness
`testified. Although the demonstrative was not admitted into evidence, the Court does not
`understand there to be a dispute about the Specific percentages recited in this paragraph. If there
`is a dispute, it is not material to any issue in this case.
`
`6 An important but confusing fact in this case is that a “direct connect” is part of the
`indirect channel of distribution, as it refers to a direct connection between an airline and a travel
`agency.
`
`

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`16. When a travel agent creates a booking, the agent typically receives a record of the
`
`booking that is compatible with the agency’s IT system, which allows the agent to easily manage
`
`the booking and provide post-booking services like invoicing and duty of care. (Stratford Tr.
`
`1220-21) (explaining automated processes applied to records and limitations of “passive
`
`segments,” that is, records of bookings created outside of the GDS)
`
`17.
`
`Travel agencies serve their customers by using proprietary systems to shop for and
`
`book flights. (Ekert Tr. 1180-83) For example, a travel agency that serves corporate customers
`
`may use comparison shopping engines that allow the agency to pull up only those options that
`
`adhere to a corporation’s travel policies.
`
`(1d,) Generally, travel agencies cannot meet the needs
`
`of their traveler customers by searching for and booking flights on airlines” websites. (Stratford
`
`Tr. 1215-16 (explaining that booking through airline website does not allow BCD to provide
`
`benefits that their customers value); Ekert Tr. 1184-85 (explaining that CWT allows corporate
`
`travelers to access full array of airline content))
`
`18.
`
`Airline ticket sales may also be characterized based on whether the passenger is
`
`traveling for business or leisure. (Kunz-Cho Tr. 1282-83)
`
`19.
`
`Airlines typically sell to leisure travelers through the direct channel. (Garner Tr.
`
`101, 123-25) Leisure travelers tend to have less~complicated itineraries and are more price
`
`conscious. (Ekert Tr. 1184) Thus, leisure travelers typically purchase tickets through an airline’s
`
`website, an OTA, or a metasearch engine (e.g., Kayak or Google Flights). (Id; Murphy Tr.
`
`1439)
`
`20.
`
`Business travelers tend to purchase more expensive tickets with more complicated
`
`itineraries (often booking at the last minute and making changes, all of which usually results in
`
`

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`higher fares and fees and, thus, more revenue for the airlines), and may be subject to
`
`employer—specific travel policies. (Radcliffe Tr. 173; Ekert Tr. 1181-82) For these reasons,
`
`business travelers often rely on TMCs to purchase tickets on their behalf. (Ekert Tr. 1183-85)
`
`C.
`
`Direct Distribution Channel
`
`21.
`
`Airlines prefer that customers search and pay for fares and ancillaries on their
`
`websites because — unlike when a traveler uses an aggregated search tool — an airline’s website
`
`displays only that airline’s content, airlines can better control the retail experience on their own
`
`websites, and airlines” costs are typically lower when using their own websites. _
`
`_ Searching for airfares 0n the airline’s website can, therefore, diminish price
`
`transparency and airlines’ incentive to compete on price. (Ekert Tr.
`
`1 192—93)
`
`22.
`
`In 2005, direct distribution accounted for approximately 50% of bookings by U.S.
`
`passenger volume. (Murphy Demonstrative at 26) In 2018, direct distribution accounted for
`
`58.8% of bookings by U.S. passenger volume. (Murphy Demonstrative at 7)7 In recent years
`
`sales volume has shifted from GDSs to airlinecom. (Adair Tr. 1726; Wilding Tr. 864) As a
`
`result, direct channel sales now account for about 50-70% of airline bookings. (Garner Tr. 91;
`
`Wiggins Tr. 1640;—
`
`23.
`
`Airlines have several tools to encourage travelers to search for and book tickets
`
`through the direct channel. Airlines can make lower price fares available only on their websites.
`
`Airlines can also rovide an “advanta eous retail ex erience” on their own
`p
`
`websitcs- _
`
`7 The two Murphy Demonstrative slides relied on in this paragraph were not admitted into
`' evidence, but the Court understands the data reported here are not in dispute. Any dispute on
`these points is not material to any issue in this case.
`
`9
`
`

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`24.
`
`Airlines may also drive bookings to their websites through metasearch engines
`
`such as Kayak and Google Flights. (Tackett Tr. 1701, 1711-12) Metas-earch engines attract
`
`price-sensitive leisure travelers who are typically searching for the lowest fare regardless of
`
`airline, and airlines can require the metasearch engine to send the traveler to the airline’s website
`
`rather than an OTA to book the ticket. (Tackett Tr. 1701-02, 1712—13)
`
`25.
`
`In the early 2000s, the launch of airline websites led to a large volume of indirect
`
`bookings shifting to the direct channel, but over the last decade, the “[c]hannel shift to direct
`
`distribution has stabilized.” (PX245 at -286)
`
`D.
`
`Indirect Distribution Channel
`
`26.
`
`In the indirect channel, unlike in the direct channel, airline content is sold through
`
`intermediaries such as travel agencies._ Travel agencies offer customers many
`
`valuable services, including access to and the ability to book content from thousands of travel
`
`suppliers, including hundreds of airlines. (Ekert Tr.
`
`1 179, 1189) This access to content from
`
`many travel suppliers allows travel agencies to provide their customers with comparison
`
`shopping and fare transparency, which travel agencies consider one of their most significant
`
`value propositions. (Stratford Tr. 1243) Accordingly, airlines that use travel agencies can reach
`
`customers who seek to do comparison shopping that they cannot do through airlinecom. (Lobl
`
`Tr. 1171-72;—
`
`27.
`
`The travel industry distinguishes between two types of travel agencies: online
`
`travel agencies (“OTAs’f) and traditional travel agencies (“TTAs”). (Gamer Tr. 100-03; Klein
`
`Tr. 1078)
`
`10
`
`

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`28.
`
`OTAs are travel agencies that sell travel primarily via the internet. (PTO Ex. 1
`
`‘H 23) OTAs cater primarily to cost-conscious leisure travelers who value comparison shopping.
`
`(PTO Ex. 1 1] 25) Examples of OTAs are Bookingcom, Priceline, Expedia, and Fareportal.
`
`(PTO Ex. 1 11 24)
`
`29.
`
`OTAs are an important and lucrative distribution channel for airlines. (PX237 at
`
`~764; Radcliffe Tr. l72;_ OTAs enable airlines to reach customers they
`
`might not otherwise reach through airline.com by allowing travelers to comparison shop across
`
`airlines, hotels, cars, and other travel options, a service airlinecom does not offer. (Garner Tr.
`
`124; Radcliffe Tr. 172) OTAs also enable airlines to sell tickets to customers in areas where they
`
`“don’t have a large presence,” and to customers they might not reach through the direct channel
`
`based on brand loyalty alone. (Tackett Tr. l703-04)
`
`30.
`
`TTAs are comprised of travel management companies (“TMCs”) and other brick-
`
`and-mortar travel agencies. (Garner Tr. 100~03) BCD Travel, CWT, and American Express
`
`Global Business Travel (“Amex GBT”) are examples of TMCs. (PTO Ex. 1 1| 28)
`
`31.
`
`TMCs primarily serve business travelers, which is the most profitable traveler
`
`segment for many airlines because they tend to book more expensive airline tickets than leisure
`
`travelers. (PTO Ex. 1 W 27, 29—30) Indeed, business travelers are often required by their
`
`employer to book through a given TMC. (Radcliffe Trfl72-73) TMCs ensure that business
`
`travelers comply with their employers” travel policies, help with duty of care, provide expense
`
`reporting and other back-office support, and manage changes to travel itineraries. (Stratford Tr.
`
`1211—12,1243-47)
`
`11
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`32.
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`A GDS is a transaction platform that connects a large number of travel suppliers,
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`such as airlines, hotels, and car rental companies, to a large number of travel agencies. (Carter
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`Tr. 266) For instance, Sabre’s GDS connects more than 400,000 travel agencies (Radcliffe Tr. 1
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`206) to more than 400 airlines (PX253 at -166) and “thousands of car companies or hotel
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`companies” (Davidson Tr. 442). These connections allow travel suppliers to distribute their
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`content to travel agencies and create and manage bookings. (DJ. 22 11 22) Airlines rely on GD85
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`to sell tickets through both OTAs and TTAs. (Garner Tr. 92, 100-03)
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`33.
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`The GDSs rely on a “traditional” payment model, under which airlines pay GDSs
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`like Sabre a “booking fee” for each flight a passenger takes. (Garner Tr. 107-08) The GDS then
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`keeps part of the fee and gives the rest to the travel agency as an “incentive payment.” (Garner
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`Tr. 108; Stratford Tr. 1209-10; see also Murphy Tr. 1435-36 (defining GDS “net fee” as what
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`GDS retains after paying incentives to travel agencies)) Sabre’s contracts with the hundreds of
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`thousands of travel agencies within its network typically require Sabre to pay travel agencies an
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`incentive per segment. (Stratford Tr. 1210) While the majority of Sabre’s revenue is generated
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`by GDS booking fees (Menke Tr. 663), Sabre also pays out millions of dollars in incentive
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`payments (Shirk Tr. 1603).
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`34.
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`GDSs provide various services, including “offer creation;” by using airlines’ fare,
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`scheduling, and availability information, GDSs assemble the flight options that an airline can
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`provide in response to a travel agent’s search. (PX096 at ~098; Radcliffe Tr. 190) Offer creation
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`is also called “constructing an offer” or “shopping.” (Garner Tr. 97)
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`35.
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`GDSs such as Sabre also provide “normalization” and “aggregation” services by
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`combining flight options from various airlines, thereby allowing travel agencies to request and
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`receive offers from multiple airlines. (PX237 at -752; Garner Tr. 92; Menke Tr. 718-19) As
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`BCD’s Stratford explained, the aggregation capabilities of GDSs are their “number one value
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`proposition” because “customers want us to shop and compare.” (Stratford Tr. 1243)
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`36.
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`Although airlines cannot distribute their full range of products and services
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`through Sabre’s legacy GDS technology (Garner Tr. 93; Radcliffe Tr. 177-78; Adair Tr. 1719),
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`GDSs allow airlines to send offers to travel agencies, create bookings when agencies select an
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`offer, and manage any changes to those bookings (Lobl Tr. 1150; Adair Tr. 1721-22). GDSs also
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`provide travel agencies additional services and technology, notably mid- and back-office
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`software. (Radcliffe Tr. 203; Ekert Tr. 1193-94)
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`37.
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`The reach and distribution capability of GDSs allows airlines to distribute their
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`products and services globally in seconds, without spending millions of dollars on marketing.
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`(Stratford Tr. 1241) It is critical for all travel agencies that GDSs can provide this aggregation
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`function in sub-second response times. (Kunz-Cho Tr. 1299)
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`38.
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`In addition to providing real value to airlines and end-user travelers, the
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`intermediary players in the indirect distribution channel — especially GDSs and travel agencies —
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`have strong financial incentives to preserve the travel distribution ecosystem and maintain it in
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`its current form. GDSs earn billions of dollars each year by charging airlines for each passenger
`segment booked through their GDS. (Garner Tr. 107; Menke Tr. 665; PTO Ex. 1 fifil 9—10)
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`Travel agencies earn a sizable income each year from incentive payments from GDSs for
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`booking airline tickets through the GDSs. (Stratford Tr. 1209-10; Ekert Tr. 1203—04; PX092 at -
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`622)
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`E.
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`Sabre’s Competitors, Including Other GDSs
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`39.
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`Sabre’s GDS is a two-sided transaction platform. (Nevo Tr. 964; Murphy Tr.
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`1422-2303
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`40.
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`As Dr. Murphy explained, “the value of the Sabre [GDS] .
`
`.
`
`. occurs on two sides,
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`where on the one side” travel agents value Sabre’s GDS “because it gives them access to a wide
`
`range of travel suppliers in a single Spot .
`
`.
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`. Because it’s attractive to travel agencies and travel
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`agencies want to use Sabre to do their side of the business, it’s therefore attractive to airlines,
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`because airlines after all want to sell their product and they want the customers.” (Murphy Tr.
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`1423; see also Murphy Tr. 1425 (GDS “platform provides value to two sets of customers - the
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`travel agencies and travelers on one side and the travel suppliers, including airlines, on the
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`other”))
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`41.
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`Sabre has controlled around 50 percent of the airline bookings made through
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`travel agents in the United States. (Nevo Tr. 931, 947; PX3 89 at -437)
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`42.
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`Because of the two—sided nature of Sabre’s GDS, the primary competitors for
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`Sabre’s GDS “in the long run” are"‘the rival GDSs,” Amadeus and Travelport. (Murphy Tr.
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`1433; see also Stratford Tr. 1250; PTO Ex. 1 1] 31)
`48.
`Chris Wilding of Sabre testified that “travel agencies, when they’re looking to a
`
`GDS, they want to make sure that the GDS can provide them with all the relevant content.”
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`(Wilding Tr. 860) Ekert of CWT similarly stated that if “Sabre was to lose content or enable
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`content but on a noncompetitive basis .
`
`.
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`. then we have the ability to shift business away from
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`them to another GDS.” (Ekert Tr. 1186)
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`3 See also US Airways, Inc. v. Sabre Holdings Corp, 938 F.3d 43, 58 (2d Cir. 2019).
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`44.
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`As Dr. Murphy explained, “[i]f [Sabre] do[es]n’t provide [the airline content that]
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`customers want, they'll lose travel agencies to Amadeus and Travelport, and if they don’t provide
`
`what the airlines want and they don’t get the airline content, that will cause them to lose on the
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`travel agency side as well.” (Murphy Tr. 1433)
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`45.
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`Sabre’s 2018 10—K filed with the US. Securities and Exchange Commission
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`(“SEC”) identifies “other GDSs” as competitors, but also lists “local distribution systems and
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`travel marketplace providers primarily owned by airlines or government entities and direct
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`distribution by travel suppliers.” (PX251 at ~160)
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`46.
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`In addition to competitive pressures arising from other GDSs, airlines’ direct
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`distribution channels, including airline.com, constitute the “most important short-term
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`constraint” on Sabre’s GDS fees. (Murphy Tr. 1433) While airline.corn is “relevant to both
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`TTA and OTA bookings .
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`.
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`. it’s especially important for OTA bookings” because “direct channel
`
`is a mouse click away” (Murphy Tr. 1434; see also id. 1438-39; Adair Tr. at 1726 (testifying that
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`Delta.com is responsible for roughly 50 percent of Delta’s distribution and “volume has gone
`
`away directly from GDSs”).
`
`47.
`
`Chris Wilding, the Sabre employee responsible for GDS contract negotiations
`
`with airlines, testified: “Airlinecorn is one of the primary competitors that we face as a GDS.”
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`(Wilding Tr. 860)
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`48.
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`Because airlinecom, including the use of airlinecom fostered by metasearch
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`engines, competes for bookings with travel agencies, it poses a significant constraint on Sabre’s
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`GDS fees, as airlines can undermine the Sabre GDS by withholding content that the airline will
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`only provide through its own direct distribution channel. (Murphy Tr. 143 7-3 8)
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`15
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`49.
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`The competition Sabre faces from both airlines’ direct channels and the other
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`GDSs is apparent from the decline in Sabre’s “net fee’? — i.e., the difference between the GDS fee
`
`charged to airlines and incentives paid to travel agencies. (Murphy Tr. 1435-36) GDS fees have
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`declined since 2000. (Murphy Tr. 1435-36; see also Stratford Tr. 1250 (testifying that GDSs
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`compete for BCD’s bookings through incentives))
`
`50.
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`A sizable portion of travel agencies’ revenue, sometimes around 10%, comes
`
`from GDS payments. (Ekert Tr. 1203; DX306 at 5; see also DX306 at l)
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`51.
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`Among the GDSs, Amadeus offers a New Distribution Capability (“NDC”)
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`application programming interface (“API”) solution (Carter Tr. 270; Shirk Tr. 1629-30), but
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`Travelport does not (Davidson Tr. 475).
`
`52.
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`To switch GDSs, travel agencies may have to retrain their agents on how to use
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`the new GDS platform. (Stratford Tr. 1216—17) Travel agencies also often rely on mid- and
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`back—office systems provided by their GDS, so moving away from their GDS would require a
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`significant adjustment to their workflows. (Ekert Tr. 1193—94)
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`53.
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`Travel agencies also face significant switching costs in transitioning customers
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`from one GDS to another. (Ekert Tr. 1 185-86, 1205-06, 1381 (explaining it took CWT.
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`months and cost—to migrate business between GDSs); Stratford Tr. 1216-18)
`
`54.
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`Sabrc’s GDS contracts with airlines may limit how well airline direct connects
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`can compete with ithor example, Sabre has had contractswith—
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`Likewise, Sabre’s agency contracts also have othe