I am really pleased to be able to join the Association of Asia Pacific Airlines (AAPA) Assembly of Presidents here in Tokyo. Having lived in Japan for a short period and seeing so many familiar faces from around the region it feels like a homecoming!

IATA and AAPA have a very good relationship that is focused on delivering value to you, our members. Most recently we have worked together in an Advance Passenger Information workshop. And we have a long history of submitting joint papers to the International Civil Aviation Organization (ICAO) and working in unison on various regional and global campaigns including those on infrastructure costs. It is a real pleasure to be here with you to explore industry issues and identify areas to deepen our cooperation.

I will start my remarks with a reminder that this is a very special year for commercial aviation as it marks a century since the first commercial flight took place on New Year’s Day in 1914 from St. Petersburg to Tampa in Florida. It was a pioneering effort involving a visionary businessman—Percival Fansler; a talented plane-maker—Thomas Benoist; and a fearless pilot—Tony Jannus. When Abram Pheil purchased the first plane ticket, commercial aviation was born.

What happened after that was no less than amazing. The value of aviation in connecting people and goods by overcoming the barriers of terrain and distance fueled growth in demand. And a hundred years later almost 100,000 flights take off on an average day, transporting 9 million people and delivering nearly 150,000 tonnes of goods to market.

It is no understatement to say that the connectivity made possible by aviation underpins the modern global economy. Aviation and aviation-enabled tourism accounts for 58 million jobs and $2.4 trillion in economic activity. In our host country—Japan—the numbers are similarly impressive—supporting 774,000 jobs and 1.0% of GDP. The government here has shown an understanding of aviation’s potential. By 2020—the year in which Japan will host the Summer Olympics—it wants to attract 20 million visitors a year—twice the current visitor levels. It doesn’t take much imagination to extrapolate the positive economic impact that will have.

That is only a very limited view of aviation’s role in the economy. What modern business does not, in some way, rely on connectivity to reach far flung markets, supply critical materials, partner to grow opportunities or discover new trends, ideas or thinking? Over the last 100 years aviation has made our world a more connected and better place.

But we are not celebrating aviation’s century by looking backwards. Last month we published IATA’s first 20-year forecast of how passenger demand will grow. It should come as no surprise that Asia-Pacific takes center stage. This year we expect 3.3 billion passengers to board flights. Many of them will be on connecting flights. The actual number of air journeys is forecast to be about 2.8 billion rising to 6.1 billion by 2034.

About two thirds of the growth in air transport over the next 20 years will involve an Asia-Pacific destination or point of origin. And half of that growth will be on journeys involving China. In fact if we imagine our industry in 2034, almost half of all passengers will be on journeys touching Asia-Pacific. And about one in five will be traveling to, from or within China.

Aviation is an industry with tremendous potential. And you are fortunate to be doing business in a part of the world that will be leading its growth. But there will be challenges. And today I would like to emphasize three critical areas where we must work together to future-enable our business:

  • Safety
  • Infrastructure and
  • Environment

Safety

Let’s start with safety—the top priority. Flying is safe. But, on very rare occasions, accidents do happen. In 2013 there were 16 fatal accidents among 36.4 million commercial flights. And the two tragic accidents involving Malaysia Airlines are a sad reminder that safety is always a constant and ever-evolving challenge.

Every accident rededicates the industry and all its stakeholders to finding ways to further improve. While the whereabouts of MH370 remain unknown, it is clear that we need to examine aircraft tracking capabilities. The recommendations of an IATA-led industry-wide task force will be considered by the IATA Board of Governors in a few weeks. In the case of MH17, it is unacceptable in any circumstance that a civil aircraft is shot down. ICAO has taken the lead in looking at how governments share information on risks to civil aircraft overflying conflict zones. And both of these bodies of work will be focal points for the ICAO Safety Summit to be held in February next year.

These cases are extraordinary events. Safety, however, is managed and improves day-by-day. That is why programs such as the IATA Operational Safety Audit (IOSA) are so important. Over 400 airlines are on the IOSA registry. September 2015 is the target for all IATA members to move to Enhanced IOSA which turns the biennial audit into a continuous monitoring of safety systems and processes. And among the AAPA carriers, our host ANA is committed to an Enhanced IOSA audit this year and Royal Brunei is scheduled in the first half of 2015. I urge the remainder of the AAPA carriers to get this important program in your diaries for 2015.

Safety improvements are now being driven by collecting and analyzing data from millions of flights that operated normally. The data will tell us how we are operating and enable us to identify potential challenges long before they become safety risks. This is being realized through the Global Aviation Data Management project (GADM) which is the most powerful collection of safety-related information in the world.

And, every piece of data makes GADM more powerful. So my message today is to encourage all AAPA carriers to contribute and benefit. What can you contribute? Information from your incident reporting activities, data on ground damage or unruly passengers and, most importantly, information from Flight Data Analysis. Several AAPA carriers are set to come on board—ANA and JAL among them, as they begin a trial period with our Flight Data Exchange service.

There is a bigger regional picture here. Using the Flight Data Exchange platform, a three-year initiative to improve safety across the region is being launched. The Asia-Pacific Regional Aviation Safety Group, which brings together some 20 governments and 12 international organizations (including IATA) has endorsed the initiative to formalize the collection and exchange of safety information among industry stakeholders. The challenge now is to confirm the active participation of the states, industry partners and airlines.

The prospects are very exciting. A similar regional program in Latin America—in partnership with ALTA—sees all carriers both contribute and benefit. The results are real. There has not been a fatal accident among the ALTA members on the IOSA registry in seven years. If you are not involved, I would encourage you to take a close look at the benefits of participation.

Infrastructure

Infrastructure is the second area that I would like to focus on. Today’s infrastructure must keep pace with the expected growth. That will be a challenge.

Air Traffic Management

Some $3 billion is being invested across the region to improve air traffic capacity and management. The Seamless Asian Sky initiative, first proposed by Japan at the 2009 Director General’s Conference in Kansai, is a great example of an initiative that will facilitate growth in a very common-sense way—by ensuring inter-operability across the region and with adjacent airspace.

The key to the region’s growth is China’s capacity to absorb the traffic needed to meet demand. I expect that everyone in this room will know from personal experience that delays are all too common. We are engaging with the Chinese authorities to help expand capacity based on the principle of flexibility—in entry/exit points from Chinese airspace, in more effectively sharing airspace among civil and military users, in dealing with congestion (particularly during bad weather) and in sharing air routes among domestic and international operators.

On a more local note, I am encouraged to see discussions in Tokyo that will help to maximize Haneda’s capacity by opening up airspace over the Tokyo metropolitan area. It always is a challenge when aircraft begin to fly in airspace that they did not use previously. But since the noise restrictions were established decades ago, aircraft are at least 70% quieter. And without the capability to increase Haneda’s hourly capacity from 80 to 90 movements, the government’s objective to double inbound tourism to 20 million arrivals by 2020 simply cannot be reached. And it will be nearly impossible to handle the peak in traffic predicted for the Olympics.

Asia-Pacific is not the only region challenged on airspace capacity. The struggle for a Single European Sky is an industry epic. The tale has been developing for decades with a clear vision of what needs to be done. But it is continuously sidetracked by parochial national interests. I am convinced that there will be a solution one day—the current madness in the way the system operates is simply unsustainable. But I am even more encouraged and hopeful that Asia-Pacific will facilitate its growth much more efficiently through the regional cooperation and collaboration that we are already seeing.

Airports

I have more concerns when it comes to airports. Many of the region’s top hubs are among the world’s benchmarks for service. Over the last decades we have seen many flagship investments support air connectivity. And we’ve seen successive rounds of expansion as needs require—Hong Kong, Singapore, and Incheon are great examples. Even here in Tokyo, the development of Haneda is an incredible story. So why am I worried? In one word, it’s governance.

Governments are increasingly looking to the private sector to partner with them in building airports. In principle we have no disagreement. The private sector can bring a lot to the table, including speed, flexibility, a spirit of partnership and an acute business sense. But this is not unique to private sector airports. Singapore Changi, Seoul Incheon and Hong Kong are examples of government-owned airports which operate to those principles. I am hard-pressed to think of any private sector airport with a solid reputation better than these.

I am not here, however, to discourage governments from tapping into private sector funds to finance airport development. But I do want to ask for caution. Private capital is not a panacea. To be successful it must have a strong governance structure embedded in regulation. The regulation must keep the consumer in mind in setting parameters on price and quality. It must set reasonable expectations on returns—in line with airports being public utilities, not hedge fund investments. There must also be reasonable limits for any royalty or concession-fee collected by the government. And the governance structure must institutionalize robust cost-benefit analysis and user consultation in the evaluation of capital expenditure plans.

India is an example of how badly even good infrastructure can fail. Without going into the details, suffice it to say that some excellent and much-needed airport infrastructure has been built. But the concession contracts were structured in such a way that the airlines are struggling to make ends meet, the investor is disappointed at the level of returns and India is not getting the economic benefits that it should be realizing. But instead of reining in runaway costs at the privatized airports, the last I heard is that India was exploring a plan to award a further 4-6 key gateway airports to the private sector, each of which has recently been modernized by the government-owned airport body.

Elsewhere, developing markets such as the Philippines, Vietnam and Indonesia are in a catch-up game to build airport capacity that meets demand and are looking to the private sector for solutions. At the other end of the spectrum, Japan (a mature market) is evaluating a solution to the impossible financial situation of Kansai Airport by combining it with Itami and privatizing the larger entity. While these discussions are advancing, there has been little or no work on defining the regulatory ground rules needed for success. And that should concern all of us.

Environment

The last challenge that I would like to mention is that of environmental sustainability. As an industry, aviation is a leader in the climate change debate. From the time of the historic Kyoto agreements signed in this country, aviation was entrusted to find solutions that fit its unique operating requirements. We have lived up to that faith by setting targets to cap net emissions from 2020 with carbon neutral growth and to halve net emissions by 2050 compared to 2005 levels. These commitments put us at the forefront of the climate change debate with industry-agreed targets that are truly challenging.

Achieving those targets will require a combination of measures. Improvements in technology, operations and infrastructure will provide the long-term advancements needed and those require continued efforts for future implementation by industry and governments. In the short term, aviation will need access to market-based measures as a complement to those other measures in order to meet its targets. At the 2013 IATA Annual General Meeting in Cape Town, our members agreed to call on governments to implement a mandatory global carbon offset scheme.

It was not an easy decision. And the details of how such a scheme could operate are being discussed both at ICAO and within IATA. There is no perfect solution. Every airline is in a unique circumstance. But our experience in the climate change debate so far has demonstrated the value of unity. There is a robust process within the IATA Environment Committee to agree the way forward. AAPA is an observer while JAL, ANA, Cathay Pacific and Singapore Airlines are direct participants. Our collective mission has to be to find the best compromise. I encourage every airline in this room to make the most of that process, while recognizing that the result will necessarily be a compromise. It won’t match everyone’s needs 100%, but it most certainly will be better than leaving it to governments to develop a patchwork of solutions that will be a nightmare for all.

New Distribution Capability

And just before I close, I would like to report on progress in an area of great opportunity—New Distribution Capability (NDC). At the direction of the IATA Board of Governors, IATA has been working with stakeholders across the industry value chain to establish global standards that would bring airline distribution into the modern age.

This has been a solid year of progress kicked off by an agreement with Open Allies for Airfare Transparency to support the principles for NDC as expressed in the NDC resolution before the US Department of Transpiration (DOT) for approval. After long and careful consideration and examination, the DOT gave NDC the green light in August. At the World Passenger Symposium last month, IATA launched the NDC Innovation Fund in partnership with Travel Capitalist Ventures to help NDC-enabled ideas come to market. And at the same meeting our GDS partners all announced their ability to support NDC in their product offerings.

NDC is now at your disposal. Given the history of innovation that is associated with so many of the AAPA airlines, I would expect that NDC will be a natural tool to use. Our team of experts stands ready to provide any assistance needed—including help in establishing pilot projects.

Conclusion

On that optimistic note, I will bring my comments to a close. As we stand at the threshold of aviation’s second century, the future is bright. The industry’s center of gravity is shifting east and Asia-Pacific—including China—is now at the center of growth that will facilitate business, drive development and spread prosperity. Aviation has and will continue to change our world for the better. There will be some challenges—continuously improving safety, providing cost-efficient infrastructure and achieving environmental sustainability. And we are still a young industry with transformational possibilities as we see with NDC.

As I close my remarks, I would like to refer back to the prophetic words of Percival Fansler on the day of that first commercial flight: “What was impossible yesterday is an accomplishment today, while tomorrow heralds the unbelievable.” That statement is as true today as it was a century ago. Aviation—particularly in this region—holds tremendous potential. And IATA and AAPA are working together and at your side to support your success.

Thank you.