A legal case initially brought by US Airways and
inherited by American Airlines after the merger of the two carriers in 2013
has resulted in the mega-carrier being awarded just a single dollar in damages by a US court,
despite winning the case. In today’s video, let's pick apart and cover in detail the background of
the legal action to discover why the airline's victory leaves it with quite little to celebrate.
Following a three-week trial, a US court jury has decided on a legal battle that has rumbled
on for well over a decade, having first been brought by US Airways in 2011. The case was
brought against the global distribution technology specialist company known as Sabre - a company that
US Airways claimed was employing hostile anti-competitive practices to increase its
revenue from selling the airline's tickets. The legal claim also accused Sabre of restricting US
Airways' ability to directly recover costs imposed upon it by Sabre from travel agents.
There’s a little more background you should know about Sabre and how it operates.
The dominance of Global Distribution Systems (GDS) such as those operated
by Sabre has been an issue for the air travel industry for years. For decades,
a small handful of players have effectively controlled the GDS industry as an oligopoly.
The major GDS providers have been Texas-based Sabre, along with Amadeus based in Madrid and
UK-headquartered Travelport. These three companies hold almost total
control over how airlines sell their tickets through travel agency networks worldwide.
The lawsuit was initially brought by US Airways. However, it was essentially inherited by American
Airlines' legal team following the merger of the two carriers. The airline claimed that practices
used by Sabre had cost it nearly $300 million and amounted to uncompetitive practices - also known
as quote-unquote 'antitrust behavior’ in legal terms. These practices included the following:
First, forcing the airline to make all of its fares (including special discount
fares) bookable through Sabre; Second, preventing the airline
from reaching out to travel agents and business travelers directly; and
Third, barring the airline from charging travel agents a separate fee to cover Sabre's service.
In 2016, American Airlines, having taken on the case, won initially at trial and was awarded US$15
million in damages. That first hearing found that Sabre's practices had caused $5 million
in financial harm to US Airways. The punitive damages awarded to the airline
were tripled under US antitrust laws to act as a deterrent against Sabre's further misconduct.
However, Sabre appealed that decision and was successful in having it overturned. The judge
hearing the appeal ordered a new trial based on new antitrust standards brought in by the US
Supreme Court in 2018 following a case involving credit card fees. These new standards made it
far more onerous for those bringing an antitrust lawsuit to prove losses occurred as a result of
the direct or indirect actions of the other party. In the latest trial, American Airlines attempted
to prove that Sabre's practices ultimately harmed consumers and that competition couldn't
be protected in a less restrictive way. It also had to demonstrate that it had suffered financial
losses directly due to the anti-competitive practices that it accused Sabre of perpetrating.
According to Bloomberg, a lawyer for American Airlines Group urged a jury to award the airline
nearly $300 million in overcharges and lost profits. It argued that Sabre had illegally
dominated the market for booking airline tickets. “There’s one company in this travel business that
doesn’t compete,” the airline’s lawyer said as part of closing arguments in early May.
The lawyer went on, saying, “The benefits that they’ve gotten from that economic power
is high prices, extraordinary profits, and that’s harmed US Airways.”
On the other side, a lawyer for Sabre said in his closing argument:
“My client’s being sued for a lot of money…People want to take it to the
cleaners for a contract that was freely negotiated and performed.”
So, in late May, deliberations had come to an end.
In the latest twist to this aviation-related legal saga, a federal court jury in Manhattan
agreed that, while Sabre's practices may not have followed the spirit of current antitrust laws,
the consequences of its practices meant that the airline had not suffered any financial losses
as a result. Furthermore, American Airlines had failed to convince the court otherwise.
In awarding nominal damages of just US$1 to American Airlines - yes - a single American
Dollar - the court was effectively giving out a clear message that it was unimpressed with either
side's conduct in the case. The token damages awarded signaled a slap on the wrist to Sabre for
its tactics which, although perhaps not in breach of the law, could be described as questionable.
Similarly, the court was unimpressed that American Airlines had failed to demonstrate that US
Airways had suffered any financial loss due to Sabre's conduct or practices and, as a result,
should not receive any damages. The single dollar awarded was simply a nominal way to
bring the legal proceedings to a formal close, sending both parties on their way
with lessons to be learned by both sides. In a somewhat muted victory statement issued
by American Airlines following the verdict and picking up on the judge's comments,
a spokesperson stated the following: “We expect this decision to discourage further
misconduct by Sabre and bring needed competition to airline distribution. The jury found that Sabre
is a monopolist that abused its power.” In response to the findings of the court,
an even more muted response issued by a public relations firm acting on behalf of Sabre said,
“We believe the jury’s award of $1 is commensurate with the evidence presented,”
One fairly ironic piece of trivia in this story is that SABRE- which stands for Semi-automated
Business Research Environment, was founded and previously owned by American Airlines.
Indeed, the company came into existence through a formal development arrangement
with IBM, which was signed in 1957. However, American would eventually
divest itself of Sabre, formalizing the separation on March 15th, 2000.
With the interesting history aside, it would be quite interesting to see if and how Sabre ends up
paying American Airlines’ its court-ordered compensation. If it’s paid out physically,
do you think American Airlines should frame that one dollar bill and hang it on a wall somewhere?
Let us know by leaving a comment! But going back to the story at hand,
airlines have been disgruntled for decades at global distribution services companies like Sabre.
Carriers have always claimed that excessive fees and anti-competitive terms imposed by this small
handful of major GDS companies effectively cost them hundreds of millions of dollars in profits.
Indeed, it’s these companies that provide flight schedules,
fare discount information, and booking services to travel agents.
Additionally, as just a handful of players control the market for GDS systems,
the airlines are left with little choice but to accept the terms offered to them by the GDS
companies, however unpalatable they may be. The battle between airlines and these global
distribution services firms is primarily over the corporate travel market. Big corporate travel
agencies use these services to show all major airlines and their sale fares in a single search.
And because the distribution services usually require airlines to list every fare in their
system to be included as part of the agreement, the services are precious to corporations that
can benefit from competitive fares that they might not otherwise have access to.
Interestingly, airlines have found workarounds to the global distribution services issue
by selling tickets through their own websites. Those sites can offer special deals
not available through Sabre and companies like it.
However, online travel agencies, which compete with the airlines' websites in
the online leisure travel market continue to use GDS suppliers as they pay them to do so.
Meanwhile, airlines stopped paying online agencies commissions on ticket sales over a decade ago.
The GDS companies are keen to demonstrate that they are not the quote-unquote 'bad guys' in
this ongoing debate. Instead, they claim that they are constantly fending off efforts by tech-driven
interlopers and upstart online travel agencies to weaken their position in the marketplace and claim
they are forced to employ tactics such as those identified in the US Airways and American Airlines
legal action to protect their place in the market. Ultimately, changes in the industry since the
case was filed a decade ago make this latest court verdict less significant in any event.
According to Sabre, distribution service fees now take up less than 5% of the cost of the average
airline ticket, and its average fee in the first quarter of 2022 was $5.28 per ticket.
Additionally, Sabre argues that fewer tickets are sold through the GDS services as airline
websites grow in importance, sophistication, and, most importantly, customer appeal.
What do you think of the decision in this case? Do you believe that there will continue to be a
dominant presence of GDS companies as the industry develops in the future?
Share your thoughts and opinions with us by leaving a comment below.