[Note: much of this blog is directly lifted from the trial transcripts AMERICAN AIRLINES, INC. v. SABRE, INC. ET AL)
To bamboozle is to trick or deceive someone through misleading statements or falsehoods. That is precisely what Kevin Mitchell and the Business Travel Coalition (BTC) are up to these days – yet again. From my perspective, this means protecting monopolists by conspiring with anybody and everybody to inflict harm on anyone or anything that might bring competition to the Global Distribution System (GDS). It is time someone calls them out on it. For too long, the industry has looked the other way in allowing the fox (BTC) into the chicken coop (air travel consumers) under the guise that the BTC advocates on behalf consumers against the big bad airlines.
In its latest façade, the BTC has started a “We The People” campaign urging the administration to enact measures against the industry that will ensure that the “all-in” cost of air transportation is made available to all distribution channels, including the GDSs. The petition reads:
“Proceed immediately with a U.S. Department of Transportation rulemaking to restore air travel comparison shopping for consumers.
Airlines have been charging for services such as for checking bags and have been hiding fees by withholding information from travel agencies such that consumers cannot efficiently compare the prices of alternatives and must visit numerous airline websites. This unfair and deceptive marketing practice is harming consumers.
Airlines have been able to withhold fee information for 5 years - evidence of a failing market. Importantly, when Congress deregulated this market, consumer protections were consolidated at DOT leaving travelers with no legal recourse under state consumer-protection laws.
DOT must require airlines, via a rulemaking, to provide fee information to sales channels where they offer base fares so consumers can see, compare and buy the complete air travel product.”
What BTC thoroughly ignores in its petition is that innovation is already solving challenges of distributing ancillary products which the airlines reasonably want to sell in as many channels as possible. But the larger question is why BTC is taking on this fight when there are far greater issues in play that impact flyers? The answer is, of course, that the consumer is not BTC’s interest here.
You see, it is impossible for the BTC to represent air travel consumers because it represents, and advocates for, a sector of the industry that monopolizes airlines. The distribution sector of the industry conspires against airlines that challenge that monopoly even if it means harming the very same consumers BTC now claims it wants to protect. I’ve reviewed transcripts from the American Airlines v. SABRE, Inc. trial - the best public record to demonstrate this activity by the GDS and the large travel interests, but it could be any airline in the way this plays out. The AA-Sabre trial was settled before a jury had the opportunity to decide the case in which SABRE was accused of conspiring to harm American in numerous actions not limited to setting up boycotts and ensuring that the airline suffered economic harm.
At the heart of the matter is the relationship of the airline industry to the Global Distribution Systems. Every time a consumer works with a travel agency, the agent offers information most likely provided by a GDS. It is the airlines that supply that data to the GDS.
First, a brief history. In the early years following deregulation, GDS were mostly owned by airlines and used to provide information to intermediaries like travel agents to sell tickets. The systems were biased toward the airline(s) that provided the technology and built using pre-internet technology. GDS were compensated for providing and maintaining these vast private networks and for acting as gatekeepers between agents and airlines.
In fairly short order, the government stepped in to regulate the bias. As a result, the GDS were no longer a distribution tool aiding the airline(s) that invested in the technology directly; instead they became a tool of the travel industry to sell a service. Today, the airlines pay an intermediary to distribute their own product – and are paying a price much higher than the GDS transaction costs. The airlines’ costs reflect an outdated model burdened by expensive technology as the GDS fight to sustain their large networks and maintain their role as gatekeeper to an airline’s own customers.
Two companies control 90 percent of US GDS services to travel agents despite the fact that there are other channels that can provide the very same information for a fraction of what airlines now pay. But don’t be fooled: It is the consumer who ultimately pays these costs, despite what the BTC and its members will tell you.
THE TRIAL – A STORY
Six years ago, in a boardroom of a very powerful company, a decision was made to bring American [replace with any “problem” airline] to its knees with a series of attacks to get what the powerful company wanted. These attacks hurt not only American Airlines, but also American consumers, because this is a story about how a very powerful company in a very secret way spent years planning to crush new competition to preserve their monopoly.
That plan had many parts and only began by hiding or dropping a problem airline’s flights from their display. Remember, the main product of the GDS is the display – that’s what travel agents use to book flights for their clients. So you drop one airline from the mix, and that airline doesn’t get the booking.
Next, they decided to double the problem airline’s fees overnight. And organize industry boycotts. And threaten exclusion of a problem airline from the GDS. And use false excuses to blame American. And hide behind secrecy and deception. And more.
Airlines know there are two ways to sell tickets to corporate travelers. The old way is the GDS way. The new, better, more innovative way, is through technology called Direct Connect. It can cut their costs. It can personalize the interaction with their consumers. It offers greater flexibility and a better way to sell tickets and other services and products. These are advantages already used by other airlines, including Southwest and Air Canada, to their great benefit. And in this case they are advantages American wanted, too.
Every company operates for profits, but this case details evidence that Sabre had a plan. Because Sabre is owned by private equity groups hoping to sell within five years, that plan provided a five-year exit. It was called Project Sovereign. The essence of the project was to do anything to protect the rich cash flows enjoyed by Sabre in order to maximize the sale price in five years.
The airline Direct Connects are attempting to have systems where they can have the complete view of their customer and offer these specialized deals for their clients using modern technology. They'll be personalized. They'll be up to date. And hopefully they'll give the traveler exactly what they want at the best price for that customer. The threat to the legacy GDS model is to go directly to the consumer – bypassing the middleman (GDS).
Sabre had one primary goal: To neutralize American and it’s attempt to disrupt the model. The GDS was their fortress. In a word, Sabre would seek to delay and destroy American’s Direct Connect.
Then in 2006, a mere two months after the new contract between Sabre and American was signed, a Sabre executive sends an e-mail to just a small group of top executives and he says, let's do an initiative -- that's corporate speak for "plan" -- let's do an initiative that targets getting as many things as possible in place. To do what? Neutralize American. Neutralize American's market move to disrupt the model. American found out about the plan through a mis-directed email. The plan was first called Five Plus Five so as to disguise it in case American found out about it. Ultimately the plan was renamed Project 99.
The plan, in the complex language favored by the GDS, involved "deployment of tools for marketplace awareness and promotions and other non-GDS airline activity." Or, in simple terms, Project 99 would monitor American and track what the airline is doing that doesn't involve a GDS. It also sought to "put contractual hooks into the travel agents" – referring, of course, to the corporate agents so critical to an airline’s business travel. The goal? To handcuff them to Sabre, and determine how to stop or limit American's marketplace actions. Finally, it sought to "get clarity on algorithm changes" -- GDS- speak for exactly the kind of biasing the government was trying to restrict.
It began on Christmas Eve, 2010, after Sabre already had been conducting six weeks of secret biassing. According to the e-mails, on December 24 the companies doubled the intensity of the bias, from 60 percent share to 30 percent share, meaning that American’s fares were that much less likely to show up on agents’ screens.
And when did this happen? 4 a.m. Because when you do something at 4 a.m. on Christmas Eve you do it hoping that no one will notice. This isn’t to say everyone that ended up being a part of this plan was a willing conspirator. The evidence showed that some big travel agencies did not want to participate. One of them was BCD Travel, which Sabre executives described as “livid” at Sabre's actions. In the end an under pressure, however, even BCD agreed to bias in over 6,000 markets. Project 99 was operational.
At the same time all this was happening, Travelport began to put a new tax on American’s flights and then add that tax to the fare price so American’s flights fall all the way to the bottom of the list. Then Expedia started biassing and American’s flights pretty much dropped out altogether. Soon, all the big travel agencies joined the boycott and the biassing.
Enter the Department of Transportation. It takes a hard look at what’s going on and deems it deceptive and wrong. The DoT inspector even calculated damages at hundreds of millions of dollars. That includes $188 million for Sabre’s six-year sabotage of Direct Connect and $544 million in lost cost savings and product sales. Add another $261 million from what investigators believe were illegal contract terms and lost web sales for a total of nearly a billion dollars. Exactly what Sabre intended.
But that is only how an airline was hurt. What about corporations? Air travel consumers? Travel agents? We just don’t know. And we certainly don’t know at what frequency some of these activities take place. Why do major travel advocacy groups ignore these actions?
THE ONLY CONSUMER ADVOCATE NOW SHOULD BE DOJ, CERTAINLY NOT BTC
On August 25, 2012, The Economist wrote: The GDSs, meanwhile, are lobbying America’s Department of Transportation to force airlines to include “core” extras (such as bag fees and check-in charges) in the fares they quote to the GDSs, to make for fairer comparisons with carriers that offer all-inclusive fares. My fear in this action and why BTC is pressing for signatures on a petition is only to ensure that the GDS receive information that only guarantees that their monopoly is emboldened going forward and that new technology like Direct Connect is forever blocked from mounting a competitive product. Stifling innovation is after all what the GDS want – particularly their owners who want to sell monopoly revenue streams back to the market.
Bottom line: we desperately need an industry correction that allows a natural evolution in business practices so the free market can work. A federal lawsuit may achieve that. Free competition will spur the innovation that anti-trust laws are designed to promote. A federal lawsuit may do that. When competition wins, the consumer wins. When innovation is allowed, the consumer wins. Don’t be fooled by the GDS industry and its supporters hiding behind the false boogeymonster of “hidden fees”. Consumers have no idea how much it already pays to an industry that stifles competition each and every day. And the largest cost is the opportunity cost imposed by the GDS industry that would rather direct consumers’ attention elsewhere. We do not need an advocacy group with these interests pretending to be the best in protecting air travel consumer interests.
Before the DoT makes another rule, let’s hope that DOJ completes its investigation of the distribution sector so monopolists can no longer conspire to stifle innovation.