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Federal probe brings aviation's GDS dispute to new level

24-May-2011

Some would say it’s about time. It has been almost two years since American Senior Vice President Government Relations cast American and other airlines in the role of victims to what he termed the greatest duopoly ignored in antitrust investigations.

The news that American, US Airways, Travelocity and Sabre received notification of the investigation, brought the entire multi-billion-dollar argument to a new level even as law suits by American and US Airways against Sabre and others make their way through the judicial system. Delta, Travelport, Travelocity and Amadeus, which has a minuscule role in the US market, have also received the “civil demand for information” from the Department of Justice for an “investigation on whether conduct by the global distribution systems violated US antitrust laws,” according to American.  The inclusion of Amadeus will very likely trigger a similar probe in Europe which it has a much larger market share.

This is the second stab at the issue by the DoJ after Farelogix, American’s Direct Connect developer, notified the department of possible antitrust activity by Sabre when the GDS terminated its agreement with Farelogix. It is unknown whether the latest probe will be coupled with that or whether there are now two probes. Farelogix has also been contacted by DoJ and is cooperating with the investigation.

“As many know, Farelogix has been in the middle of this distribution dispute, and we see a compelling need for the DOJ to act promptly to protect the interests of consumers,” said Farelogix CEO Jim Davidson, in response to the investigation. “History has shown that anticompetitive conduct of the type engaged in by the GDS is not good for consumers, and the prospect of DOJ actively and expeditiously taking action to protect the interests of consumers through this investigation is clearly a move that is fully supported by Farelogix.”

The question is, which will occur first, the civil judgements or the Department of Justice ruling which is expected to take at least a year. Either way, this will be the news to watch in coming months especially since American suggested that without its ability to market ancillaries the way it wants to, no matter how much cost cutting and capacity discipline the airlines have will have little impact compared to be what can be had from ancillaries.

While specifics of the investigation remain secret it will likely strike at the heart of the issue – whether global distribution systems have anti-competitive practices as the airlines allege. American said it welcomes the probe and rightly so since it has largely been acting on its own against distributions systems. It was only just recently joined by US Airways in its suit against Sabre, through which it gets 35% of bookings, but the rest of the industry is standing on the sideline watching American take the brunt of the sanctions imposed on it by GDSs and OTAs.

American is also alone in its recently filed law suit against Orbitz and Travelport given the sanctions which make American fares look more expensive. Its suit against Sabre concerns how fares are presented, although American dropped its listings from Orbitz last December when Orbitz refused to use American’s Direct Connect.

The next milestone in the dispute is whether or not the hold placed on the American-Sabre law suit will be lifted on 1-June when it is set to expire as the two negotiate a resolution to the discriminatory practices imposed by Sabre late last year. American’s agreement with Sabre expires in August.


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