CN09 - Challenge to CMAs prohibition of Sabre-Farelogix merger dismissed by CAT

On 21 May 2021, the Competition Appeal Tribunal ("CAT") handed down a judgment dismissing Sabre's application for review of the Competition and Markets Authority ("CMA") decision to prohibit the Sabre/Farelogix merger. Sabre had challenged the CMA's jurisdiction to review the merger, which it had claimed based on the "share of supply" test in the UK.

Key takeaways

• The share of supply test gives the CMA jurisdiction to assess a merger if, as a result of the merger, a share of 25% or more in the supply or consumption of goods or services "of any description" in the UK (or in a substantial part of the UK) is created or enhanced.
• The CAT confirmed that the CMA has "broad discretion" when identifying the criteria for defining the relevant description of services for the purposes of the share of supply test. However, once the criteria for the relevant description of services have been identified, the CMA must apply these coherently and consistently.
• The CAT found the CMA had not erred in finding the share of supply test was met by parties where Farelogix only supplies the service in the UK via one airline, and where there was only a small increment as a result of the merger.

Background

The CMA blocked Sabre's acquisition of Farelogix in April 2020 after finding that the merger would be expected to result in a substantial lessening of competition in the supply of merchandising solutions to airlines. This followed a rejection of undertakings offered at Phase 1. Sabre swiftly applied for a review of the CMA's decision, which the CAT has now ruled on. 

Sabre challenged the decision on four grounds relating to jurisdiction. The CMA had claimed jurisdiction based on the share of supply test, which permits it to assess a merger if, as a result of the merger, a share of 25% or more in the supply or consumption of goods or services "of any description" in the UK (or in a substantial part of the UK) is created or enhanced. 

The relevant description of services ("RDS") identified by the CMA was that the parties both supplied IT solutions to UK airlines for the purpose of airlines providing travel services information to travel agents, to enable travel agents to make bookings. For Sabre, the RDS was supplied through the provision of its global distribution system to UK airlines. Farelogix, meanwhile, supplied the RDS through its FLX Services to one UK airline, British Airways, which British Airways uses to market interline segments in the context of its interline arrangement with American Airlines. 

CAT judgment

First, Sabre argued that the CMA erred in the way it defined the RDS. The CAT observed that the Enterprise Act gives the CMA a broad discretion as to the setting of criteria to identify the RDS and thus Sabre could only challenge the rationality of the CMA's choice of the RDS and/or choice of criteria. Accordingly, the CAT considered that it was appropriate for the CMA to describe a category of services by reference to their functionality, and found that the chosen RDS was not too broad.

Second, Sabre argued that Farelogix did not supply the RDS in the UK. Farelogix's UK share of supply was based on its API services supplied to American Airlines, which has an agreement with British Airways. The CAT noted that British Airways receives the benefit of the service through its agreement with American Airlines, and this was sufficient to find that Farelogix's services were supplied in the UK.

Third, Sabre alleged that the CMA had wrongly applied the share of supply test. Since Sabre's pre-merger share was already greater than 25%, the test would only be satisfied if the merger would result in an increased combined share of supply between the parties. Sabre criticised the CMA's allegedly inconsistent methodology in measuring the shares of supply of each of the parties, but the CAT found no issues with the methodology. It noted that all that is required is an increment of some real value.

Fourth, Sabre argued that the CMA had erred in calculating the total supply of RDS services by failing to apply its own definition of RDS to third party providers. Sabre listed certain services which it found to have been irrationally excluded. The CAT did express some concern about the CMA's analysis here, agreeing with Sabre that the CMA does not have a broad discretion in its application of the definition of the RDS and/or of the criteria; once the definition is identified, the CMA must apply it coherently and consistently. However, the CAT held that there were no material errors of exclusion that would make any difference to the application of the share of supply test. 

The CAT's judgment has naturally been welcomed by the CMA. It supports the CMA's broad discretion to identify criteria on which to determine the share of supply test and thus find the requisite presence of merger parties in the UK. Merging parties will need to be cautious about the CMA's potential jurisdiction to review their transactions even when their UK activities seem limited. 

With thanks to Helen Chamberlain of Ashurst for her contribution.