“At the moment, airlines are somewhat constrained to those ancillary products and services that are under their direct control,” Accelya CEO John Johnston says. “The big constraint is due to ‘legacy status quo’ systems… That's the big constraint for airlines: being able to completely open up the vast array of different products and services that they could offer.”
The deal, terms of which remain undisclosed, must pass regulatory muster in one European country that is conducting an anti-trust review (Accelya and Farelogix executives declined to specify the nation conducting this review).
Johnson and Farelogix CEO Jim Davidson told Kambr Media they expect the merger to close later this summer, arguing that there is no area where the two companies compete directly.
The two executives also sought to position the acquisition as a move that would expand the offering of traditional services aimed at airline operations during a period that demands new approaches to pricing, demand, and ancillary strategies.
“It's really not revenue management anymore,” Johnston said. “It's ‘value management, value acceleration.’ That's what we're talking about here.”
Picking Up Where Sabre Left off
On May 1, Sabre announced it would give up its pursuit of Farelogix that it initiated in November 2018.
Accelya appears to have swooped in and sealed a deal barely a month after Sabre saw its $360 million bid for Farelogix blocked in early April by the UK’s government’s regulator, the Competition and Markets Authority.
In its ruling against Sabre’s effort, the CMA said approval of that merger “could result in less innovation in their services, leading to fewer new features that may be released more slowly while fees for certain products might also go up. As a result, airlines, travel agents and UK passengers would be worse off.”
The CMA noted that Farelogix’s technology lets travel agents customize the process of booking a flight and purchasing ancillaries such as meals, or seats with extra leg room. Therefore, given that Sabre is developing similar customization software for the travel agents it serves, acquiring Farelogix would diminish innovation and competition. “Airlines, and ultimately their passengers, will lose out from both this lack of innovation and the insufficient competition between the remaining companies in the market,” the regulator said.
Johnston and Davidson would not comment on Sabre’s aborted acquisition attempt. However, they did emphasize that Accelya and Farelogix services do not overlap.
“It’s important to point out: there is no point where we compete,” Johnston said when asked about his hopes for this deal’s regulatory approval. “It's quite a unique arrangement. There's no single point of portfolios, which are in competition with each other. It's entirely synergistic.
“Combined, we represent a credible and real alternative to the status quo,” Johnston continued. “But I certainly will never second guess the authorities. We will treat them with the respect they are due. We will fully cooperate with whatever they need. But I am confident we will close later this summer.”
Simplifying The Back-Office
By bringing Farelogix’s distribution capabilities together with Accelya’s revenue management services, the executives say they can better advance airlines’ digital transformation on several fronts.
Ancillary revenue growth strategies are a high priority for the combined companies. Johnston and Davidson say they can offer greater flexibility in customizing and processing ancillaries to legacy and low-cost carriers alike. The merger would also simplify interlining and improve other airline retailing functions.
For example, airlines continuously search for ways to drive ancillary revenues. As the Covid-19 pandemic has depressed demand, airlines may be more limited in what they can charge for pre-boarding, seat selection, checked baggage, and other fees.
“At the moment, airlines are somewhat constrained to those ancillary products and services that are under their direct control,” Johnston said. “The big constraint is due to ‘legacy status quo’ systems. We’ve been working for quite some time on producing an order accounting platform. We probably have the leading revenue accounting platform in the market, so we see that the accounting complexity needs to be brought forward at the time of the order itself. That's the big constraint for airlines: being able to completely open up the vast array of different products and services that they could offer.”
Together, Johnston and Davidson believe Accelya and Farelogix can accelerate the adoption of IATA’s ONE Order, which unifies bookings across all parts of a consumer’s travel experience. In addition, they expressed confidence in an improved ability to drive acceptance of IATA’s New Distribution Capability (NDC) as an industry standard that will simplify the shopping experience across airlines, travel management companies, online travel agencies, corporate buyers, and GDSs.
“We were looking at [this merger] from the perspective of the back office,” Johnston said. “That's where all the complexity is.”
“As we started talking about what airlines are going to need coming out of [the Covid-19 crisis], particularly in the area of revenue management, it took on a whole different perspective,” Davidson added. “We're very excited about that, because we have engines that need to be fed by revenue management. That's been a gap for us. So, we get to fill that out of the box.”
Challenging The Legacy Systems
While satisfaction with airline retailing has improved, the promise of a smoother, less frustrating purchasing process has remained elusive. Any vendor that can develop processes that bring a smooth e-commerce experience to commercial airline sales represents an obviously compelling case.
“As an example, you might be in the process of purchasing an airline product, such as a seat on a flight, among other services,” Johnston said. “You will consume those products and services across different tax jurisdictions. In the United States, there will be different state tax jurisdictions. Certainly if you go international there will be other tax jurisdictions. If everything regarding your booking goes according to plan, this should be no problem.
“But, what if a particular product service is not delivered as it should have been?” Johnston continued. “Then you get into issues about refunds and how those are managed. What are the tax reconciliation issues?”
It’s About Value Management
“All of those matters fall under the heading of how the discipline of revenue management needs to change,” Johnston said. “It’s also the point where the two companies complement each other’s services.”
As Johnston notes, Farelogix does not have a revenue management engine.
Accelya’s revenue management offerings are available through the unit formerly-known as Revenue Management Systems, Inc (RMS). RMS was founded in 1996 in Seattle and was itself acquired by Mercator in April 2016. It was then folded into Accelya with its base of 70 airline clients (As of July 2020, Accelya has 100 airline clients).
Apart from matching RMS’ revenue management capabilities to Farelogix distribution services, the deal also closes another gap for the Miami-based company: access to low-cost carriers, as Farelogix primarily works with large network carriers such as Delta, United, American Airlines, Lufthansa, Qatar, and a dozen others.
“What we want to do now is take that knowledge embedded with Farelogix and develop the next generation of RM,” said Johnston.
“We connect to some RM systems for price,” said Davidson. “But what we don't connect to is RM systems that deal with value of customer, value of journey, value of trip, value of ancillaries. We’re excited about how we can look at that across the entire network of the offer. Revenue management, historically, has been looked at as an input to a pricing algorithm. Now, it gets input into a customer engagement. That's a very different concept.”
The merged entity wants to do more than just target consumers based their seat selection. Johnston’s promise is that Accelya and Farelogix together can craft an analytics platform that better understands the distinct value of a passenger based on their previous buying patterns.
And with much of the industry looking to adopt a more “Amazon-like” level of consumer insight, that competitive pressure is the underlying reason for why this acquisition is happening now.
“That is going to be critical to truly laser-light targeting of offers toward valuable passengers,” said Johnston. “That's going to be in incredible demand, as we start to come out of Covid-19.”
‘There Is No Overlap’
One of the challenges Farelogix has had in the past was scale, Johnston said, describing Farelogix as “a $50 million business in Miami with 300 people.” Accelya’s client roster consists of roughly 200 airlines, including British Airways, JetBlue Airways, Alaska Airlines, and Ryanair. Its operations and 2,500-sized workforce are spread across 14 countries.
An Accelya representative noted that there were no layoffs planned as a result of the acquisition.
In sizing up the two company’s strong suits, Davidson said Farelogix focuses on creating the offer, while Accelya has historically concentrated its business on settling and auditing the transactions.
“What [Accelya brings] is a wealth of knowledge on how to expand that financial settlement cash to airlines for ancillaries that don’t revolve around the things that are controlled immediately by the airline,” Davidson said. “That's really been a struggle for Farelogix.
We've wanted to go deeper and wider into ancillaries, but it's always been difficult to look at how that breaks down. It's been difficult for the airline industry. This is why this union makes tremendous sense. We play off each other's strengths. That's what you want a merger to be.”
But before the two companies can address the wide-ranging needs of airline retailing in tandem, the question observers and regulators will be looking to see answered is just how complementary Accelya and Farelogix are.
History And Future
Barcelona-based Accelya was founded in 1976. It was acquired by private equity firm Warburg Pincus in Feb. 2017 in a debt financing valued at $720 million (650 euros, according to various news reports at the time) from French PE firm Chequers Capital.
Chequers bought the airline analytics company in 2007. At that point, Accelya operated as ADP Clearing and was owned by U.S.-based human resources and business solutions company Automatic Data Processing (ADP).
Last November, Warburg sold Accelya to another PE firm, Vista Equity Partners’ permanent capital investment fund, Perennial. Vista’s subsidiary fund is focused “on growing industry-leading vertical software companies through long-term investments in product expansion and feature enhancement.”
“We’re able to offer an airline the management of all of that complexity,” Johnston said. “They can transition at the rate they want, and we can handle that. Going back to Jim's point, the modularity of Farelogix will be preserved throughout the Accelya portfolio to allow us to manage that complexity in a coherent, comprehensive way.”
“We're not aligned to any airline group,” Johnston said, a point which Davidson says matches Farelogix’s stance as a passenger service system (PSS)-agnostic technology provider. “We're not owned in any way – or aligned to – any GDS. We have one of the technology industry's biggest investors behind us with the view of not selling businesses in a typical three- to five-year cycle. That allows Jim and I to build long-term, sustainable strategies for the future.”