Before we get into the details with our series of post on airline economics, we thought we'd introduce readers to the airline ecosystem so that everyone becomes familiar with the various parts of the supply chain and the role of each player in the chain.

This (oversimplified) diagram provides a snapshot of the airline industry's supply chain--airlines are the suppliers on the top; customers are at the bottom and intermediaries are sandwiched in-between.

Let's take a quick look at the roles of each of the players in the ecosystem:

• Airlines are the ultimate suppliers in the chain. Their role is pretty obvious, so we won't go into it much here. Each airline has a Computerised Reservation System (CRS) and all transactions ultimately have to take place within an airline's CRS.
• GDSs or Global Distribution Systems are the largest airline intermediaries. Only a handful of GDSs exist in the world--Amadeus, Galileo, Sabre and Worldspan are the world's largest and most popular GDSs. The role of the GDS is that of a centralised clearinghouse for data from an airline CRS--fares, schedules and availability for most of the world's airlines is available from each GDS. GDSs enable travel agents to query and transact with multiple airlines through a single interface. This is critical as an agent's productivity would disintegrate if he had to use discrete systems for each operating airline. GDSs charge airlines a flat distribution fee for each ticket booked through their systems. Some airlines, specifically those operating the "no-frills" or "low-cost" models choose not to distribute through GDSs as their business models do not support the per-ticket costs incurred for GDS bookings.
• Consolidators act as "distributors" for airlines. Most consolidators started out as travel agents; as they grew in size, they negotiated better rates with airlines and began distributing these better deals to smaller travel agents that did not have access to the same rates. Consolidators earn commissions and also earn a "bonus" on the basis of their ticket volumes. So, an airline will give a consolidator volume targets and then pay them a "bonus" if they meet their targets. Consolidators, in turn, share their commissions and bonuses with the smaller travel agents in their networks.
• Travel agents come in all shapes and sizes ranging from small mom-and-pop shops, large scale online travel companies, travel management companies that cater only to business travellers and tour operators that sell group travel. All travel agents deal directly with customers and earn money through commissions, GDS incentives, service fees and bonuses from airlines or consolidators.

This next (oversimplified) diagram depicts the various channels available to customers for researching and purchasing their airline tickets as well as how the various systems interact. The orange lines represent data and transactions flowing between the various systems, while the blue lines represent customer interactions with the available channels.

We hope this post has provided some basic background to the structure of the airline industry.