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Annual report and accounts 2016

24 Avios Avios, the

24 Avios Avios, the currency of loyalty “Avios offers inspiring travel rewards and experiences for its collectors with multiple ways to earn rewards through a growing alliance of leading brands.” Gavin Halliday Chief Executive Officer of Avios Overview Avios engages collectors, achieving high returns for the Group through a dynamic and versatile business model. It continues to increase customer relevance by broadening collection opportunities and linking to everyday purchases, whilst expanding ways to spend Avios. In addition to connecting IAG airlines and their frequent flyer plans through a common currency Avios presents opportunities for the Group to continue to extend its brand reach, increasing customer relevance in new markets through new airline and non-airline partnerships. The airlines benefit from the brand loyalty Avios generates, increasing the Group’s passenger and ancillary revenues. In 2016 Avios continued to build on its successes as an independent operating company within IAG. It has transformed from a predominantly UK focused loyalty entity to an international loyalty currency business, collecting revenues in euros, US dollars and pounds sterling. Key successes Avios continued to grow its airline portfolio with the addition of Aer Lingus and its AerClub programme in the last quarter of 2016, and is expecting to launch the Vueling programme in the first quarter of 2017. The addition of these airlines has seen Avios become the single loyalty currency which supports all IAG frequent flyer plans. This offers a number of strategic advantages, including an enhanced presence within Europe. Avios continues to evolve its loyalty proposition, moving it from a model specific to full service carriers such as British Airways and Iberia, to being compatible with new generation airline models such as Vueling. To achieve this Avios developed a collection proposition based on customer spend and using the Pay with Avios product to give customers the opportunity to spend Avios to reduce the cost of any flight. Through 2016, Avios has evolved its digital capabilities, paving the way for the launch of its first digital, direct collection partnership with Pizza Express, leveraging digital wallet technology, which can be used in future partnerships. Card linked collection, which is available on mobile devices, allows users to register their payment card details within the app, enabling Avios collectors to earn directly. This has allowed collection opportunities in-store, first with Caffè Nero. The data gathered through these channels will provide insights that in turn will drive future development of Avios products and tailored communication to customers. 2016 also marked a year of international growth for Avios in the field of nonairline partnerships, with the launch of key agreements, notably with fuel provider Cepsa in Spain and Irish Grocer SuperValu. Other strategic partnerships include a global agreement with Priceline Group’s Agoda. Avios took steps to expand its global footprint, with its first partnerships in both Chile and China, with Banco de Chile and Mileslife respectively, increasing the customer database. Avios also worked on a redemption proposition to enable Pay with Avios for Flybe customers with Kulula to follow in 2017 and offering increased availability and differential off-peak and peak pricing with British Airways and Iberia. Together with investment in dynamic pricing capability through the Pay with Avios product, Avios continues to work towards a leading redemption proposition offering always available redemption capability and a value proposition. Coming soon In 2017 Avios will implement a single bank solution, alongside new redemption and pricing capabilities. The single bank solution allows for: • a consolidated loyalty platform for customers to see all their points across programmes; • optimisation of customer experience by broadening collect and spend options; and • revenue and cost synergies for the Group by the end of 2017 and onwards. e-store In April 2016, Avios launched an improved online e-store which enables British Airways Executive Club, Iberia Plus and Avios Travel Reward Programme members to collect generous volumes of Avios with over 1,000 retailers when shopping online. The e-store acts as an entry portal, redirecting the customer to shop with the online retailer and rewarding them for their purchases. In 2016, 610,000 purchases were recorded. In December 2016, it was also made possible to collect Avios “in-store” with particular retailers, such as Caffè Nero. Customers link their regular payment card through the e-store and then earn Avios when using that card at the retailer’s physical site. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

25 IAG Cargo Resilient performance in challenging trading conditions “The air freight industry as a whole has suffered from decades of underinvestment in technology and IAG Cargo now has a renewed focus on innovation and digitisation across our business.” Andrew Crawley Chief Executive Officer of IAG Cargo Overview The competitive trading environment of 2015 has continued into 2016 with growing supply from freighter and new generation passenger fleets outstripping flat demand for general freight. 2016 started robustly, despite already high comparisons due to the benefits of the West Coast Port Strike in the first quarter of 2015. The second and third quarter saw demand fall off considerably leading to significant yield pressures before some improvement in the peak of the last quarter of the year. Aggressive cost management as well as continued focus on growing our premium products went some way to offsetting the yield pressure and saw IAG Cargo grow its revenue share of the market this year. Differentiation through premium products and customer focus The development of our premium products and customer experience was further reinforced with the announcement of a £55 million investment into a new premium freight facility. Set to become operational in 2018, the new building at London Heathrow has been designed around the modern demands of shippers and freight forwarders and will double our premium capacity. IAG Cargo further enhanced its premium proposition by launching ‘Critical’, IAG Cargo’s first non-off loadable product. ‘Critical’ was designed in response to direct feedback from our customers, offering them an emergency solutions product for time urgent shipments. The product, which launched in October, has already processed over 400 emergency shipments, including Formula 1 tyres and equipment, and emergency machinery parts. Our core premium products have also continued to perform at encouraging levels. With our blend of strong network, diverse product portfolio and customer offering, we achieved a premium product mix of 20 per cent this year. A primary driver of this is our pharmaceutical product, Constant Climate. This has seen consistent double digit growth year on year, in volume terms, shipping over 40,000 consignments in 2016. IAG Cargo has 110 quality approved Constant Climate gateways on its network and, following a Good Distribution Practice (GDP) certification award, is trusted as the industry leading product. IAG Cargo’s leadership in this category is strengthened by a commitment to quality training, raising standards with over 200 days of training annually for our network supply chain partners. Growth and scale The acquisition of Aer Lingus in August 2015 has demonstrated the strength and ability of our model to integrate new entrants quickly and effectively into the Group. Our product portfolio, sales teams and global operations are now fully unified, providing significant synergies for our business. We have also continued to invest to provide our customers with a strong network offering and throughout 2016 IAG Cargo has launched several important destinations: Lima, San Juan, San Jose, California, San Jose, Costa Rica and Tehran providing our customers with new options for shipping goods into key markets. IAG Cargo was also able to expand its reach by establishing partnership deals with other air carriers. IAG Cargo now has interline partnerships with over 100 airlines, the latest entrants this year being Boliviana de Aviación and Air China; which aid us in providing greater network reach for our customers. Identifying new ways to differentiate and enhance our customer proposition has also been a key focus this year. The air freight industry as a whole has suffered from decades of underinvestment in technology and IAG Cargo now has a renewed focus on innovation and digitisation across our business. This year IAG Cargo helped launch the IAG global accelerator programme, Hangar 51, a new initiative that will find and scale some of the best aviation and logistics tech startups, who will help us digitise our business and provide greater ease for customers. Conclusion Despite what has been a difficult year for the industry, we have delivered a stable and resilient performance. IAG Cargo’s model is firmly established and by continuing to invest in all areas of our business through infrastructure improvements, network expansion, new partnerships and technology advances, we will continue to bring further benefits to our customers and shareholder. We remain confident in our strategy for 2017 and beyond. Strategic report Corporate governance Financial statements Additional information

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