Annual report and accounts 2016

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Risk management and principal risk factors continued
Risk Potential impact Management and mitigation
Business and operational
Economic
conditions
IAG remains sensitive to economic
conditions in the markets in which it
operates. Deterioration in either a domestic
market or the global economy may have
a material impact on our financial position,
while foreign exchange and interest rate
movements create volatility.
In 2016, the Group performance was
negatively impacted by terrorist attacks,
the UK Referendum vote to leave the EU,
operational disruption including air traffic
control industrial action and adverse
exchange rates, partially offset by lower
fuel prices.
In 2016 the UK contributed 35 per cent of
Group revenue, Spain 16 per cent of Group
revenue and USA 16 per cent of Group
revenue.
There is continued uncertainty as we move
into 2017 with upward pressure on fuel price
and the changing political landscape.
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.
Employee
relations
The Group continues to evaluate the
potential changes following the UK
Referendum vote to ensure that we are able
to operate effectively during the transition.
At this stage, we do not believe that it will
have a significant impact on our business
in the longer term.
The Group has a large unionised workforce
represented by a number of different trade
unions.
Human resource departments within the operating companies
engage in collective bargaining with the many trade unions
representing our staff.
Collective bargaining takes place on a
regular basis and we face a significant
level of negotiation across our operating
companies in 2017.
Event causing
significant network
disruption
Failure of a critical
IT system
Any breakdowns in the bargaining process
and subsequent strike action may disrupt
operations and adversely affect business
performance.
Several possible events may cause a
significant network disruption. Example
scenarios include persistent air traffic
control industrial action; war; civil unrest
or terrorism; major failure of the public
transport system; the complete or partial
loss of the use of terminals; adverse
weather conditions such as snow,
fog or volcanic ash.
Such a disruption may result in lost
revenue and/or additional costs.
IAG is dependent on IT systems for
most of our key business processes.
The failure of a critical system may cause
significant disruption to our operation
and/or lost revenue.
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.
In 2016, British Airways completed the implementation of its new
customer management system that provides passenger check-in
and aircraft boarding functionality.
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016