While the coronavirus has threatened and disrupted the entire global economy in a matter of weeks, some sectors of the economy have been hit harder than others.
With Americans and Europeans being encouraged not to travel unless absolutely necessary, airlines and the people who work for or with them have been hit particularly hard.
As of this writing, Delta’s stock was trading at a third of its peak 2020 value. Travel booker Expedia was trading at around 40 percent of its peak 2020 value.
And Sabre, a global distribution system company that connects airlines like Delta, hotels, and rental car companies with travel agents and consumers like Expedia, was trading at just 17 percent of its peak 2020 value.
It’s going to take years for sectors like the travel industry to dig out of this economic hole, even after the pandemic is long gone.
While officials in the United States and in Europe are debating financial assistance to the hardest-hit economic sectors, it will also be critical that in the short, mid- and long-term, regulators around the world give private companies the flexibility they need to innovate and scale back up in the months and years ahead.
Part of regulators’ playbook should be a prudent and light-touch approach to antitrust enforcement, an area where unfortunately U.S. and EU officials have often stood in the way of pro-competitive progress in recent years.
Fortunately, a recent report from the White House Council of Economic Advisers challenges the status quo of a heavy regulatory hand.
The council devoted an entire chapter of its annual “Economic Report of the President” to antitrust and competition issues, and both their focus on antitrust and their broader conclusions should be applauded. The most important argument boiled down to this: “major policy initiatives to completely rewrite antitrust rules and to create a new regulator for the digital economy are premature.”
The council put its faith in markets to correct over-concentration, noting that “if markets become overly concentrated to the point that profits are excessive, new firms are likely to enter to take up the slack.”
Critically, the council also highlighted the significant downsides to over-enforcement of antitrust laws, including inefficient market organization and the potential that consumers will bear the brunt of price increases.
This chapter is a critical bulwark against the growing calls to overregulate, restrict, and break up major technology and digital companies that have delivered innovative, largely free services to tens of millions of consumers. Their growth and innovation is needed now more than ever, and will help consumers and workers deal with and dig out of a global economic crisis.
Luckily, it appears there is a roadmap for prudent policy here at home, led by the Department of Justice, Federal Trade Commission, and Federal Communications Commission.
The agencies recently approved the merger of T-Mobile and Sprint, which also just received approval from a U.S. federal judge. The merger will bring numerous benefits to consumers and taxpayers, and will help the newly merged entity compete with two larger companies, Verizon and AT&T.
It is hoped Justice will also consider the council’s perspective as it challenges a recent acquisition from Sabre, the global distribution system company, in the global travel platform space. Justice is challenging their acquisition of a much smaller travel company, Farelogix, on antitrust grounds.
Sabre helps connect airlines, hotels and rental car companies with travel agents and consumers. Farelogix, meanwhile, provides airlines with software that allows the airlines to customize passengers’ flight experience. The U.S. District Court trial challenging Sabre’s acquisition of Farelogix began in late January and wrapped up on February 6.
Justice’s challenge of the acquisition is strange at face value. The deal is worth $360 million, a large number to most Americans but actually quite below the value of many big-ticket mergers and acquisitions the Justice or FTC have been involved in.
For example, Disney’s $66-billion acquisition of Fox, which Justice reviewed and eventually approved, was 184 times larger than the value of the Sabre-Farelogix acquisition.
Sabre also argued before the trial that its acquisition of Farelogix will make it more competitive with its two rivals, Amadeus and Travelport, not less competitive, because Sabre will add Farelogix capabilities it could not as easily or affordably develop and scale up on its own. (As of early 2020, Amadeus was the industry leader, followed by Sabre, followed by Travelport.)
The Justice challenge makes more sense, though, in the broader scope of policymakers’ recent pressure on large tech companies. As Assistant Attorney General Makan Delrahim, Justice’s top antitrust official, told The Wall Street Journal in January: “Every case has its own set of facts, but this could have underlying implications.”
Unfortunately, regulators in the UK are piling on, despite warnings from digital entrepreneurs.
The country’s Competition and Markets Authority (CMA) is investigating Sabre’s proposed acquisition, even as stakeholders like The Coalition for a Digital Economy warn that CMA’s “ignorant one-size-fits-all approach to tech acquisitions, investment and mergers” threatens the UK economy.
The negative impacts of these reviews, investigations and lawsuits will only be greater in the wake of the global travel industry’s pandemic struggles.
This case, based on the available information, is about an acquisition of one small and innovative company by a larger company that wants to better compete with two large rivals — as all three companies face long and slow climbs back to financial health. Both Justice and CMA should walk back their challenges, and/or decline to appeal if Sabre and Farelogix prevail in court.
As for the mid- and long-term, the Council of Economic Advisers has charted a strong course for policymakers on antitrust and competition issues going forward, especially in the wake of the coronavirus pandemic and its impact on the global economy generally and the travel sector specifically.
The agenda should clearly look more like the T-Mobile-Sprint review — careful, light-touch regulation that helps companies innovate — and not like the Sabre-Farelogix challenge or the threats to “break up Big Tech.”
While stimulus and emergency financial support may help companies in the short run, the key to the long-term success of industries struggling in this economy is to let them innovate, grow and bounce back from these hard times.
