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Annual report and accounts 2016

12 Our strategy Six core

12 Our strategy Six core strategic objectives 1 2 3 Leadership in IAG’s main cities Leadership across the Atlantic Stronger Europe-to-Asia position in critical markets We achieve this by providing the broadest choice of destinations to our customers in our five main cities: London, Barcelona, Madrid, Dublin and Rome. Our performance in 2016 2016 saw a range of political and economic disruption across key IAG markets, resulting in a softening of underlying demand coupled with high overall industry growth. IAG’s operating companies have adapted to the new market environment by adjusting capacity, accelerating cost reduction programmes and leveraging technology and ancillary revenue opportunities to improve performance. IAG has continued to strengthen its leadership position in its main cities by focusing on profitable markets from Barcelona, Dublin, London, Madrid and Rome adding a total of 19 new destinations in 2016. Aer Lingus has looked to enhance its leadership position with 11 per cent Dublin capacity growth focused on longhaul destinations. IAG has also continued to enhance its position in London through expansion of operations into new airports with Vueling opening four new routes from Luton, and Cityflyer commencing operations from Stansted. We achieve this by providing the most comprehensive frequency and network proposition in collaboration with our oneworld partners American Airlines and LATAM Airlines Group. Our performance in 2016 As in IAG main markets, economic, political and security concerns continued to negatively impact underlying transatlantic demand in 2016. These concerns included: ongoing economic instability in Latin America, particularly in Brasil, political uncertainty across Europe following the UK’s Referendum vote to leave the EU and the Presidential election in America. At a currency level, the pound sterling depreciated 16.3 per cent against the US dollar and 13.6 per cent against the euro. Security concerns resulting from European terrorism events have also had significant impact on transatlantic performance with a softening of US originating traffic to Europe. In response to changing market dynamics, IAG has adjusted its capacity plans to focus on the most attractive return opportunities. IAG’s newest member airline, Aer Lingus, continued to strengthen its leadership position into North America, launching three new routes to Los Angeles, Newark, New Jersey and Hartford, Connecticut. British Airways also expanded its transatlantic operations, launching three new destinations: Lima, Peru; San Jose, Costa Rica; and San Jose, United States, and a new service from London Gatwick to New York JFK, while Iberia reintroduced its service to San Juan, Puerto Rico. We achieve this by increasing our direct network footprint, improving our product offering and leveraging our partners’ network reach. Our performance in 2016 IAG has continued to expand its presence into Asian markets with the reintroduction of Iberia services in 2016. Iberia launched two new services to Shanghai and to Tokyo after withdrawing from the region in 1998. Iberia’s new Tokyo service is supported by Japan Airlines through incorporation into the pre-established Siberian Joint Business. British Airways maintained growth into Asia with 4 per cent higher capacity driven by the full year of operations into Kuala Lumpur, increased frequency into Shanghai and increased utilisation of the higher gauged Airbus A380 aircraft into Singapore. IAG’s Europe to Asia proposition was further strengthened by the launch of a new Joint Business with Qatar, enabling greater IAG network reach and an expanded product offering into the Middle East, Asia and East Africa. IAG Cargo also continued to expand its Asian network options by introducing China Southern as a new partner in the Partner Plus Programme. See pages 14 – 15 for more about our performance indicators. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

13 4 5 6 Grow share of Europeto-Africa routes We achieve this by leveraging shorthaul growth opportunities and strengthening our presence in core established markets. Our performance in 2016 Volatility continued across Africa in 2016 with ongoing geopolitical issues and suppressed commodity prices impacting traffic between Europe and Africa. North and West African nations were the most impacted by these issues and, as a result, IAG has proactively reduced its capacity into a number of destinations including Angola, Nigeria, Morocco, Tunisia and Uganda. In South Africa, IAG has continued to enhance its network with the reintroduction of Iberia’s service to Johannesburg (after an absence of three years) along with greater British Airways frequencies on the Airbus A380 into Johannesburg and the launch of a new London Gatwick service to Cape Town. Stronger intra-Europe profitability We achieve this by optimising our legacy shorthaul networks, maximising commercial collaboration between our business units and expanding our low cost carrier footprint. Our performance in 2016 IAG has continued to improve intra- European profit performance despite the impact of multiple external events (including terrorist acts, air traffic controller strikes) and Vueling’s operational disruption during the summer peak. The Group has achieved this through a range of initiatives covering customer satisfaction, operational delivery, revenue optimisation and cost control. Vueling’s summer disruption in Barcelona had an impact on its full year performance. After a comprehensive review, Vueling’s management has introduced a number of critical changes, including network rationalisation and overhaul of the airline’s fleet and crew basing strategies, to improve operational resilience. Overall IAG intra-European capacity grew by 7 per cent in 2016, incorporating a 9 per cent increase in capacity between home markets and the launch of 74 new routes. Commercial collaboration across the Group has also continued to strengthen with the successful integration of Aer Lingus, further expansion of the Avios loyalty proposition and partner ecosystem, and deepening of intragroup codeshares and combined marketing efforts. Competitive cost positions across our businesses We achieve this by leveraging our scale, integrating best practices and driving simplification and harmonisation across the Group. Our performance in 2016 Over the course of 2016, IAG renewed its focus on deepening and accelerating cost reduction programmes while at the same time ensuring customer value creation. At a Group level, IAG is driving the next level of efficiencies through its integrated platform within GBS (finance, procurement and IT) and maintenance. Group synergies have also moved beyond the traditional centralised functions within GBS to include IAG Digital, IAG Cargo and Avios with a clear objective to drive further efficiencies and value across the operating companies. At the operating company level, Iberia has commenced phase II of its “Plan de Futuro” focusing on further improving labour productivity and reducing overhead costs. British Airways has introduced “Plan4” which includes improvement of capital efficiency and overall cost competitiveness. In Barcelona, Vueling has commenced its “NEXT” business model enhancement programme focused on operational excellence and cost discipline and, in Dublin, Aer Lingus continues to deliver a range of productivity and cost initiatives to further improve its value carrier proposition and performance. Strategic report Corporate governance Financial statements Additional information www.iairgroup.com

  • Page 1 and 2: INTERNATIONAL AIRLINES GROUP The be
  • Page 3 and 4: Strategic report “2016 was a chal
  • Page 5 and 6: 3 Chairman’s letter A firm focus
  • Page 7 and 8: 5 Q A And, importantly, we have to
  • Page 9 and 10: 7 IAG combines the leading airlines
  • Page 11 and 12: 9 Operating highlights British Airw
  • Page 13: 11 Business model and strategy Maxi
  • Page 17 and 18: 15 The performance indicators prese
  • Page 19 and 20: 17 IT This year significant work ha
  • Page 21 and 22: 19 and additional summer aircraft a
  • Page 23 and 24: 21 This is why we have recently lau
  • Page 25 and 26: 23 Aer Lingus Making the most of ou
  • Page 27 and 28: 25 IAG Cargo Resilient performance
  • Page 29 and 30: 27 Risk management and principal ri
  • Page 31 and 32: 29 Risk Potential impact Management
  • Page 33 and 34: 31 Risk Potential impact Management
  • Page 35 and 36: 33 Financial overview A significant
  • Page 37 and 38: 35 However, continued weakness in t
  • Page 39 and 40: 37 Exchange impact before exception
  • Page 41 and 42: 39 By supplier cost category: Handl
  • Page 43 and 44: 41 Capacity 21% 11% 8% 60% Operatin
  • Page 45 and 46: 43 Cash flow € million 2016 2015
  • Page 47 and 48: 45 Sustainability Committed to our
  • Page 49 and 50: 47 UN Sustainable Development Goals
  • Page 51 and 52: 49 Aspect and link to SDGs Noise Wa
  • Page 53 and 54: 51 Air quality - electric tug trial
  • Page 55 and 56: “2016 has really tested the Group
  • Page 57 and 58: 55 I think we can be very proud tha
  • Page 59 and 60: 57 James Lawrence Non-Executive Dir
  • Page 61 and 62: 59 The Group operating companies Av
  • Page 63 and 64: 61 The Board Secretary is Álvaro L
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    63 Induction programme New director

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    65 Other statutory information Dire

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    67 The significant shareholders of

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    69 Report of the Audit and Complian

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    71 ICFR, which is a Spanish Corpora

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    73 The Committee’s responsibiliti

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    75 Report of the Safety Committee D

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    77 Despite a growth in share price

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    79 The table below summarises the m

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    81 Malus and Clawback Provisions Th

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    83 Service contracts and exit payme

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    85 Annual Remuneration Report Commi

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    87 Additional explanations in respe

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    89 IAG PSP Award 2014 The IAG PSP a

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    91 Statement of Voting The table be

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    93 IAG’s total shareholder return

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    95 The second performance condition

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    97 Incentive Award Deferral Plan Th

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    Strategic Financial Statements Repo

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    101 Consolidated statement of other

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    103 Consolidated cash flow statemen

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    105 Consolidated statement of chang

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    107 the Income statement. All other

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    109 b Other interest-bearing deposi

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    111 Employee leaving indemnities an

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    113 IAG has initiated a project to

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    115 For the year to December 31, 20

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    117 7 Auditors’ remuneration The

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    119 For the year to December 31, 20

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    121 c Reconciliation of the total t

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    123 13 Property, plant and equipmen

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    125 16 Intangible assets and impair

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    127 Basis for calculating recoverab

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    129 19 Trade and other receivables

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    131 2 Floating rate euro mortgage l

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    133 depending on whether the employ

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    135 At December 31, 2016 the Group

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    137 27 Financial instruments a Fina

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    139 The carrying amounts and fair v

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    141 December 31, 2015 Financial ins

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    143 31 Other reserves and non-contr

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    145 Defined benefit schemes i. APS

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    147 d Fair value of scheme assets A

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    149 e Present value of scheme liabi

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    151 33 Contingent liabilities and g

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    Spanish corporate governance report

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    155 Indicate the most significant m

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    157 Explain any significant changes

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    159 B. SHAREHOLDERS’ MEETING B.1

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    161 C.1.3 Complete the following ta

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    163 Individual or corporate name of

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    165 When reviewing board appointmen

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    167 C.1.10 Indicate what powers, if

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    169 Selection of directors In ident

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    171 C.1.20 ter List any business re

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    173 C.1.31 Indicate whether the con

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    175 C.1.36 No Outgoing auditor Indi

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    177 C.1.42 Indicate and, where appr

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    179 C.2 Board committees C.2.1 Give

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    181 f. To establish the appropriate

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    183 F. Other responsibilities: a. T

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    185 c) Steps taken during the year:

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    187 C.2.2 b) Functions The main fun

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    189 D.4 List any relevant transacti

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    191 E.2 Identify the bodies respons

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    193 Main risk Government interventi

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    195 Audit and Compliance Committee

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    197 The financial risk assessment i

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    199 F.3.2 Internal control policies

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    201 F.4.2 Mechanisms in standard fo

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    203 6. Listed companies drawing up

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    205 21. The board of directors shou

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    207 37. When an executive committee

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    209 52. The terms of reference of s

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    211 IAG Remuneration Policy complie

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    213 Director Enrique Dupuy de Lôme

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    215 Strategic Report Corporate Gove

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    217 Name and address Principal acti

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    219 Associates Name and address Han

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    221 Strategic Report Corporate Gove

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    223 Operating margin Overall load f

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    225 In 2015, the definition of inve

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    227 Sustainability indicators Indic

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    Shareholder information Registered

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