INTERVIEW: Farelogix CEO Jim Davidson
March 25, 2019
Sabre’s $360 million acquisition of Farelogix, announced in November, is expected to close midyear. That is later than excepted, as the U.S. Department of Justice is taking a deeper look at the proposed transaction, Sabre CEO Sean Menke confirmed last month. It’s not the first time DOJ sniffed around matters related to Sabre and Farelogix, but the circumstances couldn’t differ more. A reported DOJ probe 10 years ago explored whether Sabre abused market power by axing a developer agreement with Farelogix in an alleged attempt to bury the technology. Now, DOJ is reviewing the merger of the former adversaries. Farelogix CEO Jim Davidson has stressed that Farelogix is different now, and so is Sabre. When Davidson was a global distribution system provocateur advancing “direct connect,” he posted a series of online videos in which a Davidson bobblehead avatar chastised GDS technology and commercial models. He wrote many blog posts in the same vein. “The bobblehead is now fully retired and living in Greece somewhere,” Davidson said last week. Yet, he himself is not retiring. He plans to stick around in his role when Farelogix becomes a wholly owned subsidiary of Sabre. Davidson sat down with The Beat editor-in-chief Jay Boehmer at the UATP Airline Distribution 2019 conference in Miami last week. An edited transcript, which includes some questions submitted via text from the audience, follows.
Boehmer: Does this protracted DOJ review slow down what Sabre and Farelogix want to do together? With New Distribution Capability, weeks and months matter, especially with some of the ambitions airlines have to bring this to scale in the near term.
Davidson: This is what I call deal purgatory. We’re going to go up or we’re going to go down, but we’re stuck in the middle. The reality is, we can’t really engage customers on all the great things we want to do. The company line is “business as usual.” The reality is it’s anything but business as usual. Sabre and Farelogix have had a varied history. It’s no secret. If people would have bet on me ending my career ultimately as a Sabre employee, they probably would have lost a lot of money on that. But it’s a different Sabre, it’s a different Farelogix and it’s a different time in the industry.
Obviously, NDC is the big topic. Somebody texted me one of the questions [from an earlier session on NDC at the UATP conference]. It was, “Why isn’t anybody controversial?” There’s still room for controversy. We’re not done yet, but it has moved on to a point where this is good for the airlines, this is good for the consumers, this is good for corporate travel, this is good for the agency and this is good certainly for the GDSs. I don’t remember the last five-time win there was in this industry for airlines and all the partners. That’s really what’s focusing the excitement now: It’s really about delivery. There is a bit of a footrace going on. That’s one of the things I get excited about in terms of having the strength and power and global presence of a Sabre relationship with our technology. At this time, we just simply have to kind of say: “It’s going to be great.”
Boehmer: You said a “varied” history with Sabre. Some people might say “acrimonious.” Like you said, people would not have placed a bet on this happening. If you fell asleep in 2009 and woke up in 2019, you’d be shocked. What happened between then and now that made this deal make sense?
Davidson: I get asked this a lot. And a lot people don’t know the last two, three-and-a-half years, we’ve actually worked pretty closely with all the GDSs when it comes to integrating our products, either on the PSS side or on the NDC and GDS side. We have 17 airline-GDS NDC integrations going on. Most people are about as shocked at that as they are hearing the news in November that Farelogix and Sabre are getting together.
We’ve been working with Sabre and Amadeus and Travelport. One of the things we experienced during those collaborative working efforts is you only go so far. You’re always careful about: Can you really do things on each other’s code? Can you really get into the servicing of it? All of a sudden, a lot of people at a lot of different levels started asking questions about how this could ultimately become better.
Then I actually got invited to dinner with Sean Menke, who I’ve known for a while but not personally. I think the second dinner I had, I excused myself, I went into the bathroom and I called my wife and said, “I don’t know if I’m coming home tonight. This is scary. These guys really have a vision that I haven’t heard in a long time. It’s either one big scam and you won’t see me ever again or there’s something going on here. We’re having some very positive conversations.” That just continued to roll forward in terms of what Sean articulated in terms of what he wants to do with the company. There’s certainly opportunity to accelerate innovation, accelerate NDC.
Boehmer: I want to understand the airline reaction to this. A lot of airlines were working with Farelogix maybe because it wasn’t a Sabre. What was their reaction? Was it hostile? Was it suspicious? Were they calling you Judas Davidson? What’s their read on it?
Davidson: Because Sabre’s a public company, the reality is we couldn’t even tell our employees [the deal was happening]. It was a surprise for everybody—there’s no question. The unfortunate part is you catch everybody off guard. The initial reaction was surprise. Then generally with surprise, people tend to think, “Oh my gosh, what’s the worst thing that’s going to happen?” There’s some old history about, “Ah I knew it: Finally, Sabre is going to buy Farelogix and shut them down.” … There’s probably a lot of other, different ways to shut us down.
I’m continuing on a road show meeting with all our customers and all our prospects. I think the worst-case [response] we’re seeing [from airlines] is, “We’re going to wait and see; we’ll see how this plays out.” We can’t get in there and show people exactly how the business is going to go [until the deal closes].
Boehmer: So you’re not losing any airline customers as a result?
Davidson: No, we have not lost a customer. The week after next, we’re having our FLX-Disrupt conference. We’ll be announcing one, hopefully two new sales that were made post the Sabre announcement.
Boehmer: What does Sabre bring to Farelogix, and what does Farelogix bring to Sabre?
Davidson: We’re a 300-person company. We’re not a big company on a scale of certainly the big guys. We’re very blessed and fortunate to have customers all around the world. As that footprint deepens, there’s a lot of pressure on our organization to really scale, and not just scale from a technology point of view. I like to tell people that we’re really, really good at building innovative airline products around NDC and offer management. We’re not that good at actually running them. I won’t criticize our folks for that, but that’s not a core strength of ours. There are some customers in the room, and we probably haven’t been as nice to you as we should have been in the last six months. We’ve made some of your lives a bit more difficult than they should be. That’s basically because of our lack of either experience or preparedness in infrastructure and networking. Trying to serve customers that literally are on the other side of the world where we have a two-hour window four days a week to actually work together—very difficult.
Even before Sabre, we were working with our board to figure out how we’re going to invest in global infrastructure. We had to move everything to the cloud. We had to get into multiple data centers. Airlines were talking about [the EU’s General Data Protection Regulation] and wanting to have hosting systems within their domain and region. We just don’t have that. We were going to go out and figure out how to do that.
We actually started a process outside of selling the entire company. As that process got kicked off, we had people knock on our door and say: “We don’t want to just give you a little bit; we’d like to take the whole thing.” If you’ve ever gone through that process, God bless you. If you haven’t, don’t let anybody tell you what it is because you won’t. It’s just a massive of bunch of papers and lawyers.
The good news is we got to know two companies really well and ended up going with Sabre. The other one was not a GDS, but a very large company. We just thought that Sabre allowed us to check off a lot of those boxes around scale. They’re running, I think, 20 data centers. They’re running a massive tri-cloud strategy. They have feet on the street, boots on the ground—however you want to put it—in all kinds of different countries, and they’re aligned exactly where the airlines are, so we didn’t have to open offices. That just made tremendous sense.
Then on the product side, they have an awful lot of the long tail that NDC requires, all the connectivity into airlines that we didn’t have. And we have a very robust offering around NDC and airline offer management, where they were a little weak, and they will admit that. When you start looking at that and you put two columns up, the board said it makes a tremendous amount of sense. Then there’s always a fun little negotiation of the price.
Even price-wise, I’m very pleased, and I think Sabre would say the same thing. It was a genuine, very respectful process. Even five, six, seven years ago, we would never have seen this happen.
Boehmer: Where are we right now with NDC?
Davidson: NDC has been around for a long time. The real deployment of it—I’m not talking about pilots and PowerPoint deployments—is new, so it has to go through what every new technology has to go through. It has to go through optimization. Somebody was telling me the other day, “NDC transactions are really slow.” You know what? They’re right. This is compared to what our expectation should be, which is milliseconds. [NDC transactions are] generally two, three, four seconds.
There’s a lot more interrogation going on at the offer level. [NDC application programming interface connections are] asking the airline, “Give us the offer,” which means, “Give us your schedule, your availability, your merchandising, your price.” Yes, we need to make that a sub-second response, but it’s not today. That’s because it hasn’t been exercised fully yet.
Boehmer: This goes in to the look-to-book ratio and shopping calls. Travelport reported that shopping requests are doubling every 18 months …
Davidson: This is Moore’s Law of shopping. This is one of the things that I would caution airlines: Be careful what you wish for, in one sense. I do believe you need to be everywhere and the same [consumer is] going to come after you in multiple channels. They’re going to come at you in mobile; they’re going to come at you from your social network; they’re going to come at you from various OTAs and various metasearch [operators], and you need to be there.
The biggest look-to-book ratio on our network that we see is around 36,000 or 38,000 to one. Think about that. That’s where we’re heading. You have to actually be accurate all those times. That means you have to do things very differently. Not only do the airlines want to respond in milliseconds, they actually want to respond with a customized or even a personalized offer.
That’s all music to my ears because I can work as long as I want in this field because it’s endless opportunity out there. But those things are all going to change.
Boehmer: A question submitted by an attendee notes that airlines have used Farelogix to bypass Sabre and GDSs and asks whether that changes.
Davidson: I am given no indication whatsoever that’s going to change. You have to look at how that is structured in the industry. I’m a firm believer that airlines will adopt a portfolio of distribution. Just like they went from direct to indirect, they’re going to sub-categorize or sub-segment within that. Within their indirect, they’re going to have some form of direct connect. In the U.S., that has panned out to be along the OTAs and the metasearch. Maybe they don’t need the technology that the GDS is offering in that channel. I don’t think corporate is going to go anywhere but [will] continue to go through the GDSs, simply because of the massive network of support that’s tied to that. That’s one of the fundamental challenges with an isolated direct connect in the corporate world, that you don’t have all the infrastructure things in place to deal with that. The logical solution is to run that right through the GDSs.
Then you’ll have a series of aggregators. I’m not going to predict how it plays out, but there’s a lot of aggregators that have grown up servicing some of the leisure or specialty markets. The technology wherewithal of those people will decide whether they’re going to go with the GDS or go direct. The composition of NDC is still going to have a majority footprint to the GDSs.
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