10 months ago

Annual report and accounts 2016

26 Digital Data

26 Digital Data underpins business transformation Digital transformation At IAG we use five areas of digital transformation to create measurable change, preparing our business for the digital age: • New business: refers to adapting our businesses for a fast moving market as well as creating new revenue streams enabled by technology and data. • Product: looks to create innovative digital products from apps that help customers navigate through airports to chatbots that can be tested and adjusted at speed. New products must drive business value and meet the customers’ needs as well as their future expectations. • Business process: aims to enable rapid scalable change through new processes. We use automation and design thinking to adjust, trim and remove processes. • People: ensures we recruit and educate employees to have the right digital skills. We created Hangar 51, IAG’s first start-up accelerator, for this purpose. We also create new methods of work, hackathons, meetups and continuous engagement with the startup and corporate digital ecosystem. • Data enablement: aims to provide fast access to the right data at the right time to predict, provide intelligence and act. Using machine learning, artificial intelligence and the latest block chain and biometric capabilities we aim to meet customer needs. Commercial in-flight Some of the key 2016 achievements include: API’s (Application Programming Interface): IAG has created over 60 open API’s to generate revenue opportunities and make easier to connect with external partners and suppliers. IATA awarded British Airways, Iberia and Iberia Express the highest certification level for their New Distribution Capability (NDC) APIs. A key NDC development was announced in September 2016 between British Airways and KAYAK, the travel search engine. Customers can now book both direct and connecting flights and pay for their preferred seat on British Airways flights via the Kayak website. One Order: IAG led IATA to reach industry approval of the One Order concept which will modernise the order, delivery and accounting processes in the airline industry. The One Order standards resolution was approved in October 2016 at the Passenger Services Conference composed of IATA member airlines. Identity: IAG is working in collaboration with UK Government bodies, partners and startups to test how a digital identity might streamline the airline passenger journey. As part of this strategy IAG has joined OIX (Open Identity Exchange) whose purpose is to accelerate the adoption of digital identity services based on open standards. IAG has now finalised the longhaul and shorthaul connectivity strategies for the Group aligning with the airlines’ focus on customers. In May, IAG announced that Gogo will provide high-speed inflight connectivity on longhaul flights using next generation satellite-based systems. It will be the first European airline group to use Gogo’s latest technology called “2Ku”. In total, 118 British Airways, four Aer Lingus and up to 15 Iberia longhaul aircraft will be fitted with 2Ku. This is in addition to the existing Iberia and Aer Lingus’ Airbus A330 fleet which have Panasonic GCS connectivity. We remain on track to fit the technology predelivery on British Airways Boeing 787-10s and Iberia Airbus A350s from 2018. IAG will introduce high speed Wi-Fi to the shorthaul fleet with Inmarsat in Summer 2017. The first install has already been completed for British Airways in December 2016. This will be followed by Aer Lingus, Iberia and Vueling later in 2017. By 2019, 90 per cent of IAG airlines’ fleet will be fitted with high quality connectivity. In addition, IAG has started the Group’s In-Flight Portal development to unlock revenue from a new channel in the air. The portal will launch for shorthaul in September 2017 and for longhaul in October 2017. Hangar 51 Hangar 51 is an airline industry accelerator programme. The ten week programme, based at IAG’s offices in London, will enable start-ups looking to enter the aviation industry to trial their products globally and receive mentoring from IAG and insight into the airline industry with a FTSE group. This will help them to rapidly accelerate their product development and gain valuable customer insight. Where a strategic alignment is identified the Group will consider investing. Hangar 51 brings the very latest start-up technology and skills together with IAG industry expertise and strong global customer brands to develop the next airline industry transformations. The programme focuses on four areas: • Improving airport processes: making customer journeys through the airport easier; • Digitising business processes: developing new tools to speedup and simplify the front, middle and back office businesses; • Data driven decisions: finding new ways that data can increase customer satisfaction, create new revenue and cost efficiencies; and • Wildcard: any idea that start-ups believe can improve customer experience. Hangar 51 has been an overwhelming success with over 450 applicants from 36 countries. 26 of which pitched to IAG’s team on December 6, 2016. The successful applicants started at IAG’s offices in London on January 9, 2017. For more information visit INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

27 Risk management and principal risk factors Effective risk management The Board has overall responsibility for ensuring that IAG has appropriate risk management and internal controls in place and that they operate effectively. IAG has an Enterprise Risk Management (ERM) policy which has been approved by the Board. There is a comprehensive risk management process and methodology ensuring a robust assessment of the principal risks facing the Group. This process is led by the Management Committee and supported by the Head of ERM. Best practices are shared across the Group. Throughout the Group, risk owners are responsible for identifying risks within their area of responsibility, quantifying and managing the risk including putting in place appropriate response plans. They are supported by risk management professionals who maintain risk maps for each operating company and at the IAG Group level, and ensure consistency over the risk management process. The risk maps plot each risk on an impact and probability scale. For each risk, mitigating actions are documented and are actively managed. Risk management framework IAG Enterprise Risk Management IAG Board Risk owners Risk policy and framework Risk maps are reviewed by each operating company’s management committee who consider the accuracy and completeness of the map, significant movements in risk and any changes required to the response plans addressing those risks. At the Group level, material risks from the operating companies, together with Group-wide risks, are maintained in a Group risk map. The IAG Management Committee reviews the Group risk map twice during the year in advance of reviews by the Audit and Compliance Committee of the Board in accordance with the September 2014 UK Corporate Governance Code and the 2015 Spanish Good Governance Code of Listed Companies recommendations. The IAG Board discussed risk at a number of meetings including a review of the assessment of the Group performance against its risk appetite; Chief Executive Officer updates; regular discussions around strategy and the Business Plan. IAG has 19 risk appetite statements which inform the business, either qualitatively or quantitatively, on the Board’s appetite for IAG Audit and Compliance Committee IAG Management Committee Operating companies’ CEOs certain risks. Each risk appetite statement formalises how performance is monitored either on a Group-wide basis or within major projects. The highly regulated and commercially competitive environment, together with the businesses’ operational complexity, exposes the Group to a number of risks. We remain focused on mitigating these risks at all levels in the business although many remain outside our control; for example, changes in government regulation, adverse weather, acts of terrorism, pandemics, fuel prices and foreign exchange. Risks are grouped into four categories: strategic, business and operational, financial, and compliance and regulatory risks. Guidance is provided below on the key risks that may threaten the Group’s business model, future performance, solvency and liquidity. Where there are particular circumstances that mean that the risk is more likely to materialise, those circumstances are described below. The list is not intended to be exhaustive. Strategic risks Open competition and markets are in the long-term best interests of the airline industry and we have a high appetite for continued deregulation and consolidation. We seek to minimise the risk that government intervention or the regulation of monopoly suppliers disadvantages us. In general the Group’s strategic risk was stable during the year with continued competitor capacity growth being monitored and assessed within the Group. Business and operational risks The safety and security of our customers and employees is a fundamental value to us. The Group balances the resources we devote to building resilience into operations and the impact of disruption on customers. Cyber risk continues to be a risk focus area this year. The IAG Management Committee has led the response to cyber risk through monthly reviews and initiatives to ensure that there are consistently robust defences and incident response plans throughout the Group. There is a Group-wide Cyber Security Governance Board that reports to the Chief of Staff. Strategic report Corporate governance Financial statements Additional information

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