Neither Sabre nor Farelogix are direct corporate travel suppliers but this M&A may have deep consequences for airline pricing
Mergers and acquisitions are the stuff of business and finance columns. Sabre’s acquisition of Farelogix late last week for an eye-watering $360m (ie more than a third of a billion) looked like another tech grandad buying a tech start-up. Analysts stressed the scale aspect – Farelogix simply needed the infrastructure and might of the larger Sabre to grow further.
The rationale behind Sabre’s willingness to provide the scale that Farelogix needs, however, is more interesting. Consider the mathematics of the ROI on $360 million.
There are potential sources for the growth of revenues required to pay for this purchase. And some come with warning lights for corporate travel departments.
Farelogix is a SaaS (software as a solution) company devoted to finding alternative airline distribution solutions. In the 20 years since its inception it has been known as a disruptor.
IATA’s NDC may have grabbed all the headlines but much of the impetus came from Farelogix which enabled airlines to distribute through APIs, a direct method of distribution which had a cost but one that did not include the GDS transaction fee.
Indeed when Lufthansa announced its infamous DCC, one of the ways in which buyers could avoid the surcharge was via Farelogix’s agents’ travel-selling platform, SPRK.
Sabre has made this move because Farelogix is the source of NDC order delivery technology. The three main GDSs – Amadeus, Sabre and Travelport – all greeted IATA’s NDC initiative with varying degrees of enthusiasm and have embraced it in different ways and at different speeds. Amadeus and Sabre are NDC level 3 accredited as both IT providers and aggregators; Travelport has level 3 as an aggregator and level 2 as an IT provider. The competition now to be the GDS in pole position for NDC is fierce as evidenced by the loud noise Travelport made around the first live NDC booking.
Sabre had been slower to the party than either Amadeus, who many believe to be at the front of the GDS pack in terms of its NDC technology, or Travelport but it has made many strong moves this year and this could seal it.
Travel technology companies make money not only from the slick technology solutions they offer airlines and intermediaries. They also make it from selling data and growth in the airline aviation data market is galloping.
According to market research firm Markets and Markets, airline aviation analytics is forecast to grow at a rate of about 15% per annum in the next five years. The market which was valued at $2.16 billion in 2016 is projected to reach $4.23 billion by 2021.
Carriers are businesses so will naturally aim to get the best yields possible. Aviation analytics helps their revenue management departments do this. The marriage of Sabre and Farelogix has the potential to produce very valuable market data.
Airlines have no obligation to share their data. Buyers, however, need to understand how and what data is being used in order to be able to continue to negotiate effectively and make the best buying decisions possible.
$360 million is a lot of money – Sabre will be looking for a return on that investment. The question is who pays.