American Airlines Inc v. Travelport Limited et al

Filing 439

Appendix in Support filed by AirTrans Airways, Inc., Southwest Airlines Co. re #438 Brief/Memorandum in Support of Motion, (Attachments: #1 Exhibits A-B, #2 Exhibits C-F, #3 Exhibits G-H, #4 Exhibit I) (Brandon, Elizabeth)

IN THE LINITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
American Airlines, Inc., a Delaware corporation,

$
$

Plaintiff,

$
$

VS

$
$

Sabre, Inc., a Delaware corporation; Sabre

$

Holdings Corporation, a Delaware corporation
and Sabre Travel InternationalLfd., a foreign
corporation, d/b/a Sabre Travel Network;

$
$
$
$

Travelport Limited, a foreign corporation and
Travelport, LP, a Delaware limited partnership,
d/b/a Travelport;

Civil Action No. 4:11-cv-0244-Y

$
$

s
$

and

$
$

Orbitz Worldwide, LLC, aDelaware limited
liability company, dlbl a Orbi|z;

$
$
$

Defendants.

$

DECLARATION OF ROBERT N. BRO\ryN
I, Robert N. Brown, do hereby declare under penalty of perjury as follows:

1.

I am over 27 years of

age, and

I am competent to make this affidavit. The

statements herein are true and made of my personal knowledge unless stated otherwise.

I

make this affidavit in opposition to the motion of American Airlines, Inc. ("American")

to compel non-parties Southwest Airlines Co. ("Southwest") and AirTran Airways, Inc.
("AirTran") to produce documents and in support of the motion of Southwest
AirTran for

2.

a

and

protective order.

I am the Director of Sales and Distribution for Southwest. I have had that

position since 2006. I have worked for Southwest for afotal of 19 years in positions in
sales and marketing. In my current position,

I am responsible for managing the different

corporate distribution channels that Southwest uses to sell tickets, including direct sales

1

EXHIBIT I

SWA App. 127

through internet sites and call centers, systems that Southwest has developed to
communicate fare and schedule information directly to corporate travel departments and

travel agents, and sales through Global Distribution Systems ("GDSs").

I

am familiar

with Southwest's relationships with GDSs, including Sabre, Inc. ("Sabre")

and

Travelport Limited ("Travelport"), and Southwest's relationships with other companies
that work with Southwest to develop systems and strategies to distribute tickets, schedule,

fare and availability information through other channels.

I

am also familiar with

Southwest's strategies to distribute tickets and information in the most efficient and cost
effective manner possible.

3.

In May 2011, Southwest acquired the shares of AirTran. Like Southwest,

AirTran is a low-cost carrier and has different cost structures and strategies from
"legacy" cariers such as American. AirTran is being operated as a separate carrier while
Southwest integrates AirTran's aircraft. and operations into Southwest. As a result,

AirTran uses substantially the same distribution channels and strategies that
before the acquisition. Since the acquisition,

I

it

used

have managed AirTran's corporate

distribution channels and have become familiar with its corporate distribution strategies,
agreements and systems.

Southwest's Distribution Strategies and Svstems

4.

Southwest has been in business for approximately 40 years. In that time,

it has grown from a small regional carrier with service limited to a few cities in Texas to
the nation's largest domestio carrier as measured by originating domestic passengers
boarded. Southwest has achieved that success by differentiating itself from the legacy
airlines, such as American. Southwest provides low cost service, which

it

can provide

2

EXHIBIT I

SWA App. 128

because

it has one of the lowest cost structures among domestic airlines.

Southwest's

cost structure and low fares give Southwest a significant competitive advantage over
competing airlines. Through a variety of strategies, Southwest has been able to achieve
and maintain high levels of customer loyalty.

5.

Southwest does business differently than most of the legacy carriers,

which is one of the reasons Southwest has been successful. One of the important
differences is the strate gy that Southwest uses to distribute and sell tickets directly to its
customers.

6.

Most legacy carriers, like American, have followed a strategy to sell

a

significant portion of their tickets through GDSs. GDSs are computerized reservation
systems that provide airlines' fare and

flight schedule information to travel agents so they

can compare and identify travel options available for their customers. Several companies

offer GDS services, including Travelport, which I understand is a party to this lawsuit.

7.

Southwest does business differently. There are advantages to using GDSs,

such as the exposure they provide for an airline's fares and services to a large number

of

travel agents. However, those advantages come with a cost, because GDSs charge
airlines for the tickets they sell. In addition, depending on how an airline structures its
distribution strategy, it can become dependent on GDSs.

8.

In 1994, Southwest decided to follow a different strategy. Previously, it

had relied on GDSs for a significant portion of its distribution and sales. At that time,
Southwest decided to signiflrcantly

limit its

sales through GDSs. As part

of Southwest's

ongoing efforts to maintain a low cost structure, it decided to reduce its distribution costs

J

EXHIBIT I

SWA App. 129

by ending its relationships with most of the GDSs. Southwest developed innovative
strategies to market and distribute directly to its customers.

9.

Southwest took significant business risks by making the decision to move

away from distributing through GDSs because
Southwest chose

it

risked losing ticket sales. But

to take that risk in order to reduce its costs and avoid

becoming

dependent on GDSs.

10.

As a result of that decision, Southwest developed an innovative marketing

and distribution strategy which differs from most other airlines. Southwest developed

marketing strategies to distribute directly to customers without the intermediary of a

GDS. As Southwest gained experience with strategies that worked well, Southwest

has

refined and improved its strategies. Over time, Southwest established highly successful

internet sites

to sell tickets directly to customers-Southwest.com (which is for

consumers generally) and SWABIZ.com (which targets business travelers). Southwest
has devoted substantial human and frnancial resources

(well into the hundreds of millions

of dollars over many years) to develop, improve and operate its two web sites. We
consider their technology and operation to be highly proprietary.
I

1.

Southwest follows

a number of confidential

strategies

to

encourage

customers to visit its internet sites and to purchase tickets directly from Southwest. This
strategy lowers Southwest's costs and is therefore an impoftant reason that Southwest can

offer lower fares. The strategy also creates a direct relationship with the customer, which
builds customer loyalty and encourages customers to return to Southwest's web sites to
purchase tickets in the future directly from Southwest.

4

EXHIBIT I

SWA App. 130

12.

Our strategies have been successful, and they give Southwest a significant

advantage over competitors like American. Now, Southwest sells approximately 85%

of

its tickets directly to customers through its internet portals and call centers. Based on

published reports, my understanding
significantly higher than that

of

is that Southwest's

share

of direct sales

is

competing airlines. Thus, Southwest has lower

distribution costs and more direct interaction with customers than its competitors, both of

which give Southwest a significant competitive advantage.

13.

Southwest supplements

its direct

sales with

a

combination

of

other

distribution strategies. Southwest distributes fare, schedule and availability information
and tickets through two other channels without using GDS systems.

(a)

First, Southwest uses a system called Booking Builder to provide a

desktop application for travel agents to access Southwest's fares and schedule.

Booking Builder was developed and is operated by a vendor. Booking Builder
operates as an intermediary between Southwest's web site and travel agent's

desktops. When a travel agent searches for schedules on a route served by
Southwest, Booking Builder notifîes the travel agent and allows the travel agent

to connect to SWABIZ.com, Southwest's intemet site for business travelers. On
SWABIZ.com, the travel agent uses the site just as any individual customer

would. The travel agent's computer is not connecting directly with

Southwest's

reservation system. Once the transaction is completed, Booking Builder transfers

the information to the travel agent's back office for billing and record keeping
purposes. Southwest has spent, and continues to spend, substantial sums to set up
this system, test its operation and ensure that customer data is secure.

5

EXHIBIT I

SWA App. 131

(b)

Second, Southwest has developed Southwest Gateway Services,

which is an internet interface developed by Southwest that connects Southwest
fares and schedules to booking tools operated by third parties called Concur,
Rearden, GetThere and Egencia. (We are considering entering into agreements

with companies providing other booking tools, and those discussions and
evaluations are highly confidential.) Those are all internet sites that corporate

travel departments or travel agents can use

to search for flight and fare

information and purchase tickets. None of those systems operates on the travel
agents' desktop; rather, they are internet applications. The users' computers are

not connecting directly with Southwest's reservation system. Southwest
invested millions
Services

of dollars to develop, test and operate

has

Southwest Gateway

with these vendors' systems, and we consider the technology

we

developed to be highly confidential.

14. I understand that American argues that information about those systems
used by Southwest is relevant to rebut arguments by Travelport that American's so-called

Direct Connect system is technically and commercially flawed. Although I have lifile
knowledge of American's system, it is very unlikely that our different systems

will

shed

any light of whether American's system has technical or commercial flaws.

15.

There is no clear definition of "direct connect" systems in the industry

because there are so many variations of distribution channels. For example, some "direct

connect" systems operate like American's and operate on the travel agent's desktop,

while others are stand-alone web sites.

Vy'e sometimes refer

to our distribution through

6

EXHIBIT I

SWA App. 132

Concur, Rearden, GetThere and Egencia as "direct connects," even though they operate
very differently from American's Direct Connect system.

16.
types

of

The technology used by different systems varies significantly among the

systems and among

airlines. A system like American's will

require

programming to operate on the travel agent's desktop. A system like Concur or Rearden

require creating an internet web site and do not operate on the travel agent's desktop.

The fact that the Concur internet site works would not answer any questions about
whether American's computer programs are flawed.

17.

In addition, any system operated by a third party (such as a GDS or the

systems like Concur used by Southwest) must obtain fare and flight information from the

airline's reseruation system. However, those systems vary significantly between airlines.
Each airline develops and modifies its computerized reservation system to meet its own

needs. Because each airline's system is different, the technical issues to connect to the
system

will likely be different. As discussed

above, Southwest's systems do not

communicate schedule or fare information to a travel agent's desktop. Instead, Booking

Builder invites travel agents to Southwest's internet site, and Concur, Rearden, GetThere
and Egencia are internet sites that communicate with Southwest's reservation system
through Southwest's confidential and proprietary internet protocol. Because Southwest's

internal reservation system

no doubt differs significantly from American's, the

technology to communicate with those systems would also be different. In short, the fact

that Southwest has developed technology that allows Concur to work with Southwest's
reservation system

will

shed no light on whether there are flaws in the technology that

American developed for its desktop Direct Connect system.

7

EXHIBIT I

SWA App. 133

18.

I understand that American also argues that information about Southwest's

systems may rebut arguments that American's system is flawed commercially. However,

the commercial success of a distribution channel depends on many different factors that

will vary according to the airline and to the system.

Customers must be

willing to use a

particular system. Southwest's direct connect systems require customers

to go to

SWABIZ or third party web sites like Concur; American's apparently requires travel
agents

to use a

system operating on their desktop. Because the systems function

differently, customers

will

accept them

differently. Further, customer

acceptance

depends on how easy a particular system can be used; American's may be cumbersome,

while Concur may be intuitive and easy. Customer acceptance will also depend on
marketing and promotion by the airline and the vendor. It also depends on the loyalty of
customers and their desire to

fly on a particular airline. Southwest

has worked hard in a

variety of ways to create a particularly loyal customer base compared to competing

airlines. There are so many differences among airlines and their distribution channels,
that the commercial success of one will not explain whether another system and strategy
has commercial flaws.

19.

In addition to the direct distribution channels described above, Southwest

has contracts with only two GDSs-Sabre and Travelport.

A relatively small percentage

of our sales are through GDS systems. GDSs offer different levels of service, and
Southwest has negotiated commercial and flrnancial terms that best flrt Southwest's model.

Based on published reports, the terms of Southwest's GDS contracts may be different
than the terms of American's contracts with Travelport and Sabre. Because Southwest

follows a different model, and has structured its model to be less dependent on GDSs,

I
EXHIBIT I

SWA App. 134

one would expect that the terms
negotiated

of

Southwest's contracts would be different and

to suit Southwest's needs. We believe that the price and other terms of our

contracts give Southwest a competitive advantage, and we treat the contract terms as

highly confidential. Southwest would lose that competitive advantage if American were
able to use Southwest's contracts to try to obtain the same terms.

20.

Because of Southwest's success, several competitors appear to be trying to

copy Southwest's ticket distribution strategy. For example, according to published
reports, American is trying to develop strategies

to encourage customers to purchase

tickets directly from American without using GDSs, much like Southwest
successfully done. The disclosure

of

has

documents showing how Southwest has been

successful would give competitors insight

into Southwest's proprietary distribution

strategy, business model and overall success. Southwest has refined and improved its
strategies and systems based on hard work and experience, and the disclosure of the

information would give competitors

a

shortcut

to the most effective direct

sales

strategies. In shoft, the disclosure of this information would likely lead Southwest to lose

the competitive advantages

it now enjoys in direct customer

sales and

its lower cost

structure.

21.

American seeks documents about our "technological capability," which

would reveal the proprietary technology Southwest has developed and could guide

a

competitor trying to develop technology that equals or betters Southwest's. Further, as
discussed above, the technology that Southwest has developed almost certainly is
different than the technology used by American's different systems. American also seeks
documents conceming "distribution

of SWA products and services to business travelers

9

EXHIBIT I

SWA App. 135

served by travel agents

or travel

management companies."

Not only would that

encompass just about every document concerning sales to business travelers, but it would

reveal our strategies, business plans, and future plans for selling tickets to business

travelers. American seeks "communications with GDSs regarding any Direct Connect
initiative," which would reveal not only the confidential information behind our current
channels but also our highly confidential plans for the

future. American also

seeks

documents about "whether and to what extent SWA does or should use, or limit its use

of, a GDS, including cost comparisons." Such documents would reveal our conflrdential
internal analysis to develop low cost distribution channels, which is one of the keys to our
success as

a low cost carrier. American also seeks "[a]ll

documents concerning

distribution of SWA's content through GDSs or to their subscribers." That request has

virtually no limits and could encompass every document about every one of
thousands of fares and schedules and millions of tickets distributed by a

the

GDS. It would

also encompass our confidential past, present, and future plans for distribution using

GDSs. In sum, the information American seeks goes to the heart of our
business strategy,

is highly confidential,

and would guide

a

successful

competitor

to

copy

Southwest's success.

22.

I understand that American

has also served a subpoena seeking testimony

from Southwest on a number of topics. One category is the "technological capability of
Southwest and the GDS to implement a Direct Connect distribution model."

category

A similar

is the "technological aspects" of Southwest's connection to "Travelport's

Universal Desktop and participation in Travelport's

uAPI."

encompass Southwest' proprietary technology about

a connection that is not industry

Those categories would

10

EXHIBIT I

SWA App. 136

standard, which

it has developed at signifrcant cost and effort.

Fufther, Southwest's

technology is almost certainly different than American's because of the fundamental
differences between the systems. Another category is the "distribution of products and
services to business travelers served by travel agents or Travel Management Companies."

We employ unique strategies for marketing and distribution to business travelers which
are highly

confidential. In addition, when a customer purchases

a

ticket, we often do not

know if the passenger is traveling on business, for pleasure or a combination. Another
category is "fc]ommunications with GDSs regarding any Direct Connect initiative,"

which would go explain the fundamentals of our unique and confidential

strategies.

Another category is "Southwest's internal analyses of whether it should use, or limit its
use of, a GDS and the costs of direct distribution versus distribution through a GDS."
This goes to the heart of our direct distribution strategy. It would be our analysis of what

works, what needs improvement, what we decided not to pursue, and would give

a

shortcut to a competitor developing its own direct distribution strategy. This category

would also cover the cost information that gives Southwest a competitive advantage as a

low cost carrier. Another category is the "commercial aspects of Southwest's Direct
Connect arrangements."

I am not

sure what that phrase means, but

it would

encompass

the commercial terms we have negotiated to pursue our strategies and maintain our
competitive advantages.

23.

Southwest goes

to

great lengths

to

maintain that information

as

confidential. To guard the secrecy of Southwest's distribution strategy and thriving
business model, only

a small number of people in the Distribution team and

senior

management of our company know the details about the strategy and business plans.

11

EXHIBIT I

SWA App. 137

Similarly, only a small number of people know details about the terms of our GDS

contracts.

All persons with knowledge

about the agreements are required

to

sign

confidentiality agreements to further protect the terms and details of our distribution
agreements. Our computer system allows only a limited number of people to have access

to the business plans and other strategic documents concerning our distribution channels,
and passwords are necessary

to log into the system. We

also have confidentiality

provisions in our GDS agreements and in our agreements with the vendors who provide
Booking Builder, Concur, Rearden, GetThere and Egencia. The employees who work on
distribution are subject to confidentiality provisions in our employment agreements. In
sum, Southwest has developed a different distribution model from competing airlines,

and we zealously protect the information about our distribution strategies from
disclosure, particularly to our competitors.

AirTran's Distribution

24.

Systems and Stratesies

As discussed above, in May 2011 Southwest acquired AirTran. AirTran is

currently operated as separate carrier using the distribution channels it had developed
over

time. Like Southwest, AirTran is a low cost carrier. AirTran

has contracts with the

major GDSs, with price and other terms that were negotiated to meet AirTran's needs.
The terms of those contracts

will likely say little

about the terms offered to other airlines.

AirTran also sells tickets through its web site, airtran.com, and it has developed
confîdential plans and strategies to encourage more customers to purchase tickets directly

from AirTran. By following those strategies, AirTran has increased the percentage of
direct sales and has reduced its distribution costs. The lower costs allow AirTran to offer

lower fares.

t2

EXHIBIT I

SWA App. 138

25.

In addition, AirTran has a direct distribution channel through Concur. As

explained above,

it is a web site where corporate travel departments

can make

reservations. AirTran also has an agreement with a third party to provide AirTran
Vacation, which is another internet site where consumers can make airline, hotel, and
other reservations. Because these are all internet sites, information about them would say

almost nothing about "direct connect" systems designed to operate on a travel agent's

computer. In addition, AirTran uses a system developed by Farelogix, which provides
information from AirTran's computeúzed reservation system to Concur for travel agents
and corporate customers.

I

understand that American also works

would have substantially the same information

as

with Farelogix, so it

AirTran concerning the operation of the

Farelogix system. Further, because AirTran's computerized reservation system is almost

certainly different from American's, the ability of Farelogix to work with AirTran's

system would

not provide useful information about Farelogix's operation with

American's system. AirTran considers information about its distribution channels to be
highly confidential.

I declare under penalty of perjury that the foregoing is true and correct. Executed
on February

(,f'

,2013.

Robert

Brown

13

EXHIBIT I

SWA App. 139

CertifTcate of Service

This is to certify that I have served a copy of the foregoing Declaration of Robert
N. Brown on the parties to this action via the Court's electronic case filing system on this
the 6th day of February,2013.

lslElizabethB

t4

EXHIBIT I

SWA App. 140