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Annual report and accounts 2016

192 Spanish corporate

192 Spanish corporate governance report continued E.5 Identify any risks, including tax risks, which have occurred during the year. Risk that occurred during the fiscal year Circumstances giving rise thereto Performance of control systems UK referendum on EU membership Network disruption The vote to leave in June 2016 resulted in increased volatility in fuel and foreign exchange rates. In 2016 the Group was impacted by air traffic controller strikes resulting in disruption to our operations with delays and cancellations and increased costs under EU261/04 directive. The IAG Board and the Management Committee review the financial outlook and business performance of the Group through the financial planning process and regular reforecasts. Management have reviewed their business continuity plans. The impact of the industrial action in Vueling resulted in additional depth being built into the management team to increase resilience against any similar strike action or external network disruption. E.6 Explain the response and monitoring plans for the main risks, including tax risks, the company is exposed to. Main risk Response and Monitoring Plans Airports The Group’s airlines participate in the slot trading market at Heathrow airport; acquiring slots at reasonable prices when available. The Group continues to promote an efficient, cost-effective, ready to use and fit for purpose infrastructure development at the Heathrow airport. The Group enters into long-term contracts with fuel suppliers to secure fuel supply at a reasonable cost. Short-term fuel shortages are addressed by contingency plans. Plans to address capacity issues are reviewed by the IAG Management Committee. Supplier performance risks are mitigated by active supplier management and contingency plans. Brand reputation Each of our brands is supported by the Group Business Plan, where capital expenditure is reviewed and approved by the Board. The Group allocates substantial resources to safety, operational integrity and new aircraft to maintain its market position. We are also investing in a number of products and facilities to improve our customer experience. Competition The IAG Management Committee devotes one weekly meeting per month to strategic issues. The Board discusses strategy throughout the year and dedicates two days per year to review the Group’s strategic plans. The Group strategy team supports the Management Committee by identifying where resources can be devoted to exploit profitable opportunities. The airline’s revenue management departments and systems optimise market share and yield through pricing and inventory management activity. The Group’s strong global market positioning, leadership in strategic markets, alliances, joint businesses, cost competitiveness and diverse customer base continue to address competition risk. The Group is continually reviewing its product offerings and responds through initiatives to improve the customer experience. IAG plans to set up a next generation longhaul operation in Barcelona. Consolidation and deregulation Digital disruption The Group maintains rigorous cost control and targeted product investment to remain competitive. The Group has the flexibility to react to market opportunities arising from weakened competitors. Vueling and Iberia Express give us additional flexibility in this regard as they can deploy capacity at short notice across Europe. The IAG Management Committee regularly reviews the commercial performance of joint business agreements. In 2016, the IAG Management Committee continued to review the joint business arrangements with American Airlines with respect to the inclusion of Aer Lingus. The IAG Management Committee regularly reviews our franchisee performance and risks. Maintaining a leading presence in oneworld and ensuring the alliance attracts and retains the right members is key to ongoing development of the network. The Group’s focus on the customer experience, together with our own exploitation of digital technology, reduces the impact digital disruptors can have. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

193 Main risk Government intervention Cyber attack Economic conditions Employee relations Event causing significant network disruption Failure of a critical IT system Landing fees and security charges Pandemic Safety/security incident Debt funding Response and Monitoring Plans The Group’s government affairs department monitors government initiatives, represents our point of view and forecasts likely changes to laws and regulations. The Group’s ability to comply with and influence changes to regulations is key to maintaining operational and financial performance. The Group continues to monitor and discuss the negative impacts of government policy such as the imposition of Air Passenger Duty (APD). A Group Cyber Security Governance Board reviews the Group IT security strategy, cyber risk initiatives and considers advice from industry experts. The IAG Management Committee regularly reviews cyber risk and supports Group wide initiatives to enhance defences and response plans. Whilst ensuring that we are up to date with industry standards and address identified weaknesses, the fast moving nature of this risk means that we will always retain a level of vulnerability. The IAG Board and the Management Committee review the financial outlook and business performance of the Group through the financial planning process and regular reforecasts. These reviews are used to drive the Group’s financial performance through the management of capacity and the deployment of that capacity in geographic markets, together with cost control, including management of capital expenditure and the reduction of operational and financial leverage. External economic outlook, fuel prices, and exchange rates are carefully considered when developing strategy and plans and are regularly reviewed by the Board and IAG Management Committee as part of the monitoring of financial and business performance. Human resource departments within the operating companies engage in collective bargaining with the many trade unions representing our staff. Management has business continuity plans to mitigate this risk to the extent feasible. In 2016 the Group was impacted by air traffic controller strikes resulting in disruption to our operations with delays and cancellations and increased costs under Regulation EU261/04. The impact of the industrial action in Europe on Vueling resulted in additional depth being built into the management team to increase resilience against any similar strike action or external network disruption. System controls, disaster recovery and business continuity arrangements exist to mitigate the risk of a critical system failure. The Group engages in regulatory reviews of supplier pricing, such as the UK Civil Aviation Authority’s periodical review of charges at Heathrow and Gatwick airports. Also, the Group is active both at an EU policy-level and in consultations with airports covered by the EU Airport Charges Directive. Management has business continuity plans to mitigate this risk to the extent feasible. The corresponding safety committees of each of the airlines of the Group satisfy themselves that they have appropriate resources and procedures, which include compliance with Air Operator Certificate requirements. Their incident centres respond in a structured way in the event of a safety or security incident. The IAG Management Committee regularly reviews the Group’s financial position and financing strategy. The Group continues to have good access to a range of financing solutions. In 2016, British Airways, Iberia and Vueling all raised secured debt from a broad range of financial institutions. The Group’s high cash balances and committed financing facilities mitigate the risk of short-term interruptions to the aircraft financing market. Strategic Report Corporate Governance Financial Statements Additional Information www.iairgroup.com

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