Mark Pestronk
Q: Were you surprised by the Justice Department's recent lawsuit filed to stop American Express Global Business Travel Group from acquiring CWT? As you know, Justice is trying to stop the acquisition on the grounds that it will tend to create a monopoly in the sale of travel management services in a defined market of giant corporations. Do you think it will succeed? Do you think it will get dismissed by Trump's new attorney general?
A: I was very surprised by the suit because the monopolization argument is ridiculous. I was also surprised by the timing of the suit because the administration has now changed, and its antitrust policy will probably change, too.
The basic premise of the lawsuit is that there is a distinct market for global/multinational (GMN) travel management and that only Amex GBT, CWT and BCD can fulfill the needs of this market. While it is true that those three firms have most of the GMN accounts, it is not true that only three or so TMCs are capable of meeting the needs of those accounts.
So what are the needs of GMNs? According to Justice's complaint, GMN accounts have unique needs in that they "1) have operations in more countries and localities; 2) have more demanding requirements for a higher degree of 'touch' and 24/7 service at scale; 3) utilize more customized technological solutions; 4) have higher switching costs due to the high degree of back-office integration; 5) have more highly customized pricing; 6) more frequently negotiate contract rates directly with travel suppliers, creating more complex pricing options; and 7) have greater difficulty substituting to an in-house solution."
What Justice doesn't understand is that small-to-medium accounts often have the exact same needs. Therefore, there is no defined market for GMN service within the meaning of the antitrust laws.
The Justice Department also does not understand that the market is hardly limited to three players. More than a dozen U.S. travel agencies can and do meet these needs for large businesses, both domestic and international. Further, two or three consortia have the capability to put together a network fully capable of serving the largest global accounts.
Without a defined market and a small number of competitors, the DOJ's case falls apart under the antitrust laws. No company can monopolize the TMC business.
Why, then, do almost all the biggest GMNs use just three TMCs? The answer is that big businesses like to rely on the safety of big suppliers, and the biggest TMCs have spent decades marketing their capabilities, polishing their images and taking accounts away from smaller TMCs. As they used to say, "Nobody ever got fired for picking IBM."
It will take Amex GBT and CWT many months to get the case dismissed on their own, but I believe that they will succeed before the end of the year. In the meantime, the Trump administration will undoubtedly be more pro-business than its predecessor, and it may well dismiss the case on its own first.