10 months ago

Annual report and accounts 2016

22 Vueling Continuing

22 Vueling Continuing with the Vueling evolution “Vueling’s key strategic levers for the future are customer focus, operational excellence and profitability.” Javier Sanchez-Prieto Chief Executive Officer of Vueling Performance € million 2016 Higher/ lower Revenue 2,065 5.2% EBITDAR 315 (18.6%) Operating profit 60 (62.4%) Key statistics Punctuality 68.6% Fuel efficiency gCO 2 /pkm 87.3 Overview Our operational environment was particularly challenging in 2016. We suffered abnormal levels of external disruptions, including many industrial actions mainly in France, and unprecedented levels of air traffic controller disruptions which affected 35 per cent of our flights compared to 12 per cent a year earlier. Vueling took strong and successful measures, engaging all the necessary resources, to return the operations to expected levels. Since 2004 Vueling has grown rapidly through various development stages; the merger of Vueling and Clickair, the Spanish domestic market consolidation, and its expansion into European markets. Vueling now enters into a new phase, a time to strengthen all aspects of the organisation and reinforce our foundation. In this new phase, the customer will be at the centre of everything we do. Our customers demand good prices and a reliable experience (in our segment punctuality and regularity). We also want the relationship with our company to be easy, and we will innovate our customer experience to improve the ease of doing business with us, while maintaining high levels of reliability. Vueling NEXT, our plan to realise our new vision and strategy Vueling has designed an integrated and cross-functional plan called Vueling NEXT that relies on four main pillars as the basis for its evolution into this new stage. First, achieving operational excellence by upgrading the capabilities of our operation to deliver a higher level of efficiency and reliability. The second pillar will focus on building a sustainable and profitable network based on a smart restructuring that shifts capacity to better performing markets, gains efficiency through reduced complexity, seasonality and variability, and Vueling targets aligned with IAG targets 2016 2016-2020 Lease adjusted operating margin (%) 6.7% (5.1)pts 7-15% RoIC 7.3% (6.4)pts 15% ASK growth per annum 11.2% 7% Fleet 110 130 improves fleet utilisation. As a result, we will strengthen Spain as our top market in Europe, in both the leisure and business segments, building leadership positions in key Spanish cities in order to become the customers’ preferred choice when travelling between Spain and the rest of Europe. We will also selectively pursue other international growth opportunities that align to our strategy. The third pillar is aimed at building a reliable customer proposition. Vueling will redesign its customer experience with the objective of delivering the best low cost customer experience in Europe. Through more reliable operations, we expect to capitalise on improvements in on-time performance and reliability. We will focus on how the customers do business with us, from easy booking to efficient customer assistance, while improving the way we communicate with our customers, keeping them up to date on their journey. Our aim is to meet the customers’ needs by a better alignment of products and services to our distinct customer segments. Lastly, these changes will be supported by our fourth pillar, a high performing organisation that aims to evolve our team. This will focus on the right talent in the right job, efficient and effective management and engaged employees translating to a more customer-focused organisation, with broader knowledge and deeper experience, and the ability to deliver a stronger international footprint. Vueling will also reinforce its resources in key areas to support more efficient and stable operation. Vueling NEXT supports and enhances our continued effort to lower costs and increase efficiency. As an example, Vueling NEXT targets gains in fleet and maintenance utilisation and improvements in employee productivity, by optimisation of resources and planning. A customer oriented approach and a more robust operation will also yield customer service and compensation benefits. We will continue to work on supply-chain savings based on efficiency and leverage of the IAG platform and to realise efficiencies on new aircraft entering the fleet from 2018, including five additional Airbus A321 aircraft. Conclusion Vueling is building a stronger platform to serve as a firm base for future growth and solid financial performance, achieving IAG targets. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

23 Aer Lingus Making the most of our opportunities “2016 has been a year of profitable growth with a strong return on invested capital supported by reduced non-fuel unit cost and an improved guest value proposition.” Stephen Kavanagh Chief Executive Officer of Aer Lingus Performance 1 € million 2016 Higher/ lower Revenue 1,766 +2.8% EBITDAR 399 +40.2% Operating profit 233 +86.9% Key statistics Punctuality 82.5 Fuel efficiency gCO 2 /pkm 87.0 1 The comparison to 2015 includes the annualised results of Aer Lingus Overview Throughout 2016, we have leveraged the benefits of IAG ownership, with accelerated network and fleet growth, cost synergies and increased market reach to deliver a record operating margin of 13.2 per cent This result is underpinned by our positioning as a value carrier and our application of a resilient demand led business model – a model that is simple by design; centred on cost, product and service. We are committed to delivering value to our guests, and our productivity and non-fuel unit cost improvements in 2016 have enabled us to deliver more competitive products, and to significantly improve our operating margin. An ambitious strategy Our ambition is to be the leading value carrier across the North Atlantic, enabled by a profitable and sustainable shorthaul network. Our strategy is based on key fundamentals which include a strong guest-focussed brand and service, a network that offers compelling connection propositions, and a competitive and resilient cost base. We believe that Aer Lingus is well positioned to continue to grow successfully to extract the benefits of IAG ownership, and to deliver on our targets. A value carrier focussed on guest experience Guided by our “Voice of Guest” surveys and direct feedback, we have continued to invest proactively in product, process and brand to improve our guest experience, cost and value proposition. A key focus in 2016 was our on-time performance and we achieved the most punctual status every month at our main base of operations, and were placed in the top 20 most punctual airlines globally. Aer Lingus targets aligned with IAG targets 1 2016 2016-2020 Lease adjusted operating margin (%) 14.9% +6.0pts 15%+ RoIC 23.1% +11.1pts 15%+ ASK growth per annum 9.6% 8% Fleet 47 59 The roll-out of our new transatlantic business cabin was completed with consistency across the Aer Lingus Airbus A330 and Boeing 757 fleets. In 2016, we introduced new and enhanced retail products, simplified boarding processes and automated check-in facilities, and launched our new loyalty programme AerClub, with Avios, in the fourth quarter. These initiatives and the dedication to service delivered every day by the team at Aer Lingus have been rewarded by increased seat factor, guest satisfaction and cost efficiencies. Our “Good to Great” programme, which incorporates consistent service standards across the customer journey, continues to deliver, and we received external validation with the award of a 4-star rating by Skytrax during the year, becoming Ireland’s first and only 4-star airline. Building the Dublin Gateway We remain committed to exploiting the geographic advantage of Dublin as a gateway between Europe and North America. In 2016, we continued our profitable growth, we built on the momentum of recent years, with direct services to Los Angeles, Newark and Hartford, strengthening IAG’s leadership across the transatlantic and leveraging the power of the Aer Lingus mainline and regional shorthaul networks. The profitable network growth was enabled by the introduction of an additional Boeing 757 and two Airbus A330-300s, the latter procured jointly with the benefit of IAG. In 2017, we will introduce two more Airbus A330-300s to add frequency and capacity across our networks, and we will begin a new direct service to Miami. We continue to use this growth to drive efficiency and productivity in our Dublin operations. Revisions to turn, team composition and increased use of automation, for example, in combination with the increased scale of operations, have improved the relative cost competitiveness of the Gateway. Conclusion In 2017, we, in Aer Lingus, will build upon our success and target sustainable returns for IAG. Our commitment to our demand led value carrier model will see us continue to focus on cost, product and service. In addition, we will develop our commercial capabilities to further leverage the network opportunities provided by fellow IAG airlines, American Airlines and other partners. Strategic report Corporate governance Financial statements Additional information

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