AS China's aviation industry grows, the world's information technology providers see a huge opportunity in outsourcing IT contracts from Chinese airlines.

Pressed by increased competition as more overseas carriers enter the market, domestic carriers should urgently streamline processes to raise efficiency and cut costs, industry analysts said.

"Intensified competition against the backdrop of high oil costs are calling for more efficient systems in reservations, sales, flight scheduling, business process and many other areas," said Ji Lijun, an analyst with Shanghai Securities Co.

"As the nation's leading carriers are set to join international alliances, the need to be in line with international standards requires more investment in IT systems," she said.

China's aviation IT market is estimated to be worth eight billion yuan (US$1.03 billion), according to industry forecasts. That's compared with about two billion yuan in 2002, said a report by CCID Consulting, China's leading IT market research company.

The IT department deals with almost all parts of an airline's operation, including reservations, global distribution, departure systems, business management, flight scheduling, cargo transfer planning, operation control systems, frequent flyer programs and cabin crew management.

It also includes the maintenance of computer terminals and infrastructure.

The massively tempting pie has attracted industry leaders like Electronic Data Systems Corp and International Business Machine Corp to seek a big bite.

United States-based EDS, the world's biggest IT outsource service provider in the transport industry, has set up a global service center in Shanghai, with a major focus on aviation.

It plans to build a new one in Wuhan this month and is looking for further development.

"We are hiring a lot for the research and development centers in China," said Tim Dullum, EDS vice president and leader of the global transport industry.

"China's aviation market is set to become one of the biggest in the world in the next 10 to 20 years and we expect it to invest more in IT infrastructure to support the rapid development."

Opportunities

He said EDS has started approaching Chinese airlines and expects to win some contracts later.

The most opportunities were seen in data base operation and management, and application software development, maintenance, updates and management, he said.

EDS is responsible for the screening system and information management system for Hong Kong airport, and IT planning and infrastructure management for Beijing Capital International Airport's expansion project.

IBM also entered the market two years ago and is seeking more market opportunities, industry sources said.

A CCID report shows global airlines invest two to three percent of their sales in IT systems every year, while China's percentage is less than one percent, indicating a massively untapped market.

The General Administration of Civil Aviation of China also called for domestic carriers to upgrade eight IT systems within the year, including global distribution systems, electronic business management, departure systems and enterprise resource planning systems.

But Chinese companies have been mostly content to do the job themselves rather than outsource IT projects.

China Southern Airlines and Air China Ltd each keep a very large IT department with between 200 and 300 staff.

Shanghai-based China Eastern is the first state carrier to outsource part of its IT functions.

"We started outsourcing part of the IT job two years ago," said a China Eastern official with the IT department who declined to be named.

"We evaluated every chain of our business and outsourced the parts that didn't create added value to our business," he said.

"IT outsourcing should be the development trend for Chinese carriers in the future but not for now," said China Eastern's IT official. "Given the low labor cost in China, we found it more economic to keep the job ourselves, and we believe people within the airlines know better what the airlines need."

Investment

He admitted that cooperation between in-house departments with outsource service providers will be gradually strengthened to maximize profits.

All the carriers agreed they are investing more every year to upgrade IT systems.

China Eastern has decided to invest a lot more in its IT system this year, the IT official said.

"The growth in IT investment will for the first time outpace the sales growth last year," he said.

China Southern Airlines said it would buy software and its own IT team will redevelop it to make it fit the carriers' own needs.

China Southern signed a five-year contract in February with Lufthansa Systems to upgrade its flight service system. Lufthansa Systems will provide the Chinese carrier with NetLine, an up-to-date flight scheduling and network planning system later this year.

How smart thinking can cut costs

HERE's an example of how IT solutions can help cut costs for an airline.

The issue

A leading European air carrier which has just acquired eight airlines hopes to maximize efficiency by finding a way to coordinate flight-planning among all of its carriers.

The type of aircraft, navigation, weather and other conditions can dramatically affect fuel efficiency. So the carrier hopes to find a way to coordinate air routes and speeds, and fuel and flight plan calculations to reduce fuel consumption.

To deliver optimum results, the solution needed to interface with a variety of systems already in use so that flight plans could be electronically linked throughout the airline's network.

The approach

A software-based flight planning system will coordinate and optimize all the variables that can affect fuel efficiency.

It can access a number of real-time data sources such as operation control information, weather and the latest "notice to airmen" information to optimize the accuracy of flight planning calculations.

This enables the system to produce flight plans that allow an even greater reduction in fuel consumption and overflight charges.

The result

The new flight planning system, in conjunction with a comprehensive program to re-engineer many of its planes for maximum fuel efficiency, has helped the carrier reduce fuel consumption by as much as two percent annually.