IAG holds attractive leadership positions in each of its home markets Top carriers from IAG home markets - TTM to August 2019 Other carriers Next competitor IAG Revenue share Passenger share Total €34bn €7bn €6bn €4bn 157m 44m 46m 30m market 22% 43% 45% 48% 57% 58% 62% 63% 46% 17% 16% 26% 11% 7% 8% 19% 38% 36% 32% 31% 31% 31% 29% 23% LON MAD BCN DUB LON MAD BCN DUB Source: share created by information provided by DDS and is based on all O&D trips out of the city disclosed 23
The market has already seen significant consolidation 63% of the European short-haul market is represented by 5 airline groups - a c.20ppt increase since 2008 Intra- Europe available seats, today’s 5 largest airline groups Other Lufthansa, Ryanair, IAG, easyJet, AF/KLM 948m 927m +2% CAGR 888m 837m 775m 743m 37% 734m 734m 725m 724m 723m 37% 696m 39% 39% 40% 42% 42% 46% 49% 53% 57% 53% 63% 63% 61% 61% 60% 58% 58% 54% 51% 47% 47% 43% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: OAG. Europe excluding Russia and Turkey. Note: IB is not included in the group of 5 until the creation of IAG. Date and airline acquired: 2009 Austrian, 2011 IAG creation, 2013 24 Vueling, 2015 Aer Lingus, 2016 Brussels Airlines
Changing dynamics will make continued operation harder for weaker players… Reports of credit card companies withholding airline payments ▪ Significant reduction in working capital for airlines when customer payments are withheld before departure ▪ IAG estimates advanced sales from credit cards could be up to €10m per long haul aircraft ▪ These changes make it harder for airlines to navigate typical industry seasonality 25
…in a market which is increasingly difficult for new entrants… European Short Haul airlines founded between 2000 and 2016 last an average of 6 years...at a failure rate of c.70% Start-up airline failures in Europe* Year No. Start- No. Year of failure Founded ups failures 2000 10 8 2001 12 7 2002 22 18 2003 18 15 2004 13 9 2005 8 7 2006 9 7 2007 6 6 2008 8 6 2009 9 6 2010 6 2 2011 4 3 2012 6 4 2013 4 2 2014 4 2 2015 8 2 2016 7 3 107 1 2 2 3 4 5 4 8 7 11 9 10 9 9 7 2 7 7 TOTAL 154 Source: Internal analysis and OAG 26 * Using intra-European flying only, if an airline was acquired or merged and then shut down, then this is not classified as a failure
...and has recently seen significant failures, for both new and established airlines Founded: 1967 Founded: 1978 Founded: 2009 Failed: 2017 Failed: 2019 Failed: 2018 Founded: 2000* Founded: 1995 Founded: 2011 Failed: 2019 Failed: 2019 Failed: 2019 Founded: 1946 Founded: 1979 Founded: 2016 Failed: 2019 Failed: 2017 Failed: 2018 *2000 marked the launch of Thomas Cook Airlines UK under the brand JMC Air, 1841 was when the travel group was first founded. 27
Cost efficiency & innovation
IAG are leaders in driving cost efficiency… Non-fuel unit cost performance 2010-YTD 100 100 -9.8% -10.7% 95 95 90 90 85 85 80 80 2010 2011 2012 2013 2014 2015 2016 2017 2018 9M19 2010 2011 2012 2013 2014 2015 2016 2017 2018 9M19 130 120 +16.0% 120 +23.2% 110 110 100 100 90 90 80 80 2010 2011 2012 2013 2014 2015 2016 2017 2018 9M19 2010 2011 2012 2013 2014 2015 2016 2017 2018 9M19 Source: Internal analysis and Annual Accounts – All reporting for airline related businesses only 29
…with each of our OpCos positioned competitively against their peers 2018 non- fuel cost per ESK^ (€ cents) 6 Eurowings 5 easyJet** Lufthansa American Delta (Network Airlines) Vueling AF-KLM United 4 ANA Aer Lingus IAG Iberia Singapore* Qantas*** LATAM 3 British Airways Norwegian Emirates Ryanair* Wizz* 2 1 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000 4,200 4,400 4,600 4,800 5,000 5,200 Stage length (km) Source: Internal analysis and latest Annual Accounts. * Year ending 31 March 2019 ** Year ending 30 September 2018 *** Year ending 30 June 2019 30 ^ Where appropriate, airline only related costs have been used. ESK = Equivalent Seat Kilometre, used to align cost bases across different configurations
IAG ranked #1 for Digital Transformation 1 Frost & Sullivan Global Airline Digital Transformation report benchmarked IAG alongside 65 other global airlines and airline groups including: + 37 other global airlines 31
Digital Transformation’s unlocking significant early value SHOP ORDER SETTLE DATA MARKETPLACES AUTOMATION DIGITAL MINDSET 4k+ 1700+ £30M+ 3 £90M Connected Technologies AI / Data Plan Venture Pilots Cost Savings NDC partners Screened 32
Comprehensive NDC solution in place for British Airways and Iberia… IATA @Scale certification planned in Q4/19 Limited functionalities NDC ready Mass adoption 2020 Early 2019 adoption @Scale 2017 ▪ Full offer & order management, including complex servicing ▪ Minimum capability for high volume of NDC 2016 transactions BA, IB, AA, LHG and QF are at the forefront, with highest IATA NDC certification in Q4/19 Note: IATA Level 3 capability requires the use of Offer and Order Management APIs. Level 4 capability requires extensive use of Offer and Order Management APIs and the use of Servicing 33 Messages. These are both precursors to @Scale which is the highest level of certification.
…impressive growth in 2019 and forecast to exceed IATA 2020 target* Accelerating deployment of unique content via Digital channels^ In 12 months x3 NDC adoption Already available ▪ Exclusive ancillaries ▪ Exclusive tactical campaigns ▪ No Distribution Technology Charge applied ▪ Additional price points on Short Haul (SH) and selected 2018 2019 Long Haul (LH) markets Coming in Q4 2019 / Q1 2020 In 12 months x7 NDC adoption ▪ 3 times more price points on long haul (including North Atlantic) ▪ Exclusive hand baggage only fares 2018 2019 *NDC 20% of indirect distribution by year end 34 ^ Digital distribution channels = Direct + NDC
On a fast track path towards efficient and modern digital distribution Long Term Objectives End Year Volume Share* (%) today Legacy • Increased revenue from enhanced retailing capability Legacy distribution decreasing • Meeting customer expectations with more 55% choice, an omni-channel seamless customer 43% experience and lower consumer prices • Lower net cost of distribution through Digital efficient digital distribution 2016 2017 2018 2019 2020 2021 2022 * Volume = Passenger Sector Journeys (PSJs) 35
IAG Sustainability
IAG is committed to being leaders in sustainability What do we mean by sustainability? • Committed to being the leading airline group on sustainability • Environmental considerations integrated into business strategy • Using our influence to drive progress across the industry • Climate change is our main sustainability focus • Other material issues include noise and waste management, supply chain, governance and workforce • IAG has a track record of leadership on environmental issues over the past 20 years: • First airline to report its carbon footprint (BA, 1992) • The first airline to set a fuel efficiency target (BA,1999) • The first airline to participate in (UK) emissions trading (BA, 2002) • Early pioneer in exploring sustainable aviation fuels (2010) 37
IAG integrates sustainability into business strategy Business OpCo business incentives and Governance planning disclosures • Integrate sustainability into • Considering business incentives • IAG Board review and approve: • sustainability strategy business plans aligned to climate targets • annual disclosures • Carbon prices factored in fleet • Regular and robust external • major climate-related purchasing decisions non-financial disclosures with investments • Group risk management third party verification • Climate-related risks integrated and control policy • Detailed carbon disclosures into Enterprise Risk • IAG Management Committee Management process through the CDP (Carbon Disclosure Project) assesses, challenges and sets • In 2018 undertook detailed the strategic direction scenario planning of the • Sustainability programmes potential impacts of climate change on our business in 2030 coordinated at Group level 38
Climate change – the big picture
1.5ºC warming and net zero emissions now the new focus Global agreements on Climate Change Paris Accord 2015: 2ºC warming limit IPCC Report 2018: 1.5ºC warming limit • Paris Accord included aspiration for 1.5 ° C warming limit • 2018, UN Intergovernmental Panel on Climate Change (IPCC) reported on 1.5 ° C warming: • Atmospheric CO 2 concentration is now 415 parts per To remain below 1.5 ° C, global emissions must: million (ppm) versus 270ppm in pre-industrial period Reduce 55% from 2018 to 2030 (vs by 2050 for a 2 ° C 1. • Global average temperature is now 1.1ºC above the pre- target) industrial period Be “net zero” emissions globally by 2050 2. • A concentration of 450 ppm will mean warming of 2ºC • “Net z ero ” means any CO 2 emitted in a year is • Scientists and policy-makers agreed need to limit balanced out by CO 2 absorbed in that year warming: Paris Accord (2015) in which 195 countries • Over 70 countries and 85 companies are now agreed to limit warming to 2 ° C committed to net zero by 2050 or sooner • Some countries have committed to this in law including UK and France 40
Aviation contributes 2.4% to global CO 2 emissions >85% of aviation emissions are from journeys of over 1,500km where there is no viable alternative Global CO 2 emissions by industry Aviation CO 2 emissions Rail 1% Other 5% Aviation 2% Other 2% Buildings & agriculture 10% Aviation 11% Shipping 11% Transport 22% International 60% Industry 24% Other 98% Road 74% Domestic 40% Power generation 40% 2018 2018 2018 2014 Source: ETC Mission Possible 2018, International Energy Agency, ICCT CO 2 from Commercial Aviation 2018 41
To secure its future, aviation has to commit to Net Zero Without action, aviation emissions could double while global emissions stabilise Global and aviation CO 2 emissions: 2005 – 2018 Global and aviation CO 2 emissions: 2018 – 2050 (no further action) Global emissions Global emissions Aviation emissions Aviation emissions Aviation % of global emissions Aviation % of global emissions 40.0 +7.9% 37.1 37.1 30.0 +23.7% 3.8% 2.4% 2.4% 2.3% 1.8 +100% 0.9 +38.8% 0.9 0.7 2005 2018 2018 2050 Source: Crippa et al 2019, International Energy Agency, Climatewatch.org, Energy Transition Committee “Mission Possible” 42
Aviation industry action plan
Overlapping measures and regulations: ETS/CORSIA Global regulatory framework General 2009 2015 2020 1997 Global UN Copenhagen UN Paris Paris Accords Kyoto Protocol Summit Accords (2°C) implemented 2018 – UN Special 2008 UK UK Climate Report (1.5°C) 2019 – UK Net zero Change Act Aviation 1995 2019 EU taxes Air Passenger 5 taxes in place, 4 Duty introduced more in development 2005 - 2007 2013 - 2020 2019 2021 – 2030 Allowances EU ETS training aviation included in EU new EU Parliament, ETS cap reduces (ETS) period ETS, Phase III focus on aviation 2009 2016 MBMs 2020 IATA agrees carbon-neutral growth ICAO agrees CNG CORSIA starts (CORSIA) (CNG) from 2020, 50% drop by 2050 2020 & CORSIA 44
Taxes do nothing to tackle climate impact Europe’s “green” taxes on aviation Tax framework 2004 2011 2012 2016 2018 1999 2015 2020 2021 1995 • Sweden Italy Germany Austria Norway France first France Netherlands UK Airline departing departing departing departing departing civil publication of eco-tax departing Passenger tax aviation tax tax tax tax Payments to tax Duty (APD) tax Governments • Shift from Report voluntary (covering to • 2015) The UK has the highest aviation tax in the world mandatory includes • Rates have increased by 700% since 1994 reporting in payments per • In 2018 IAG airlines paid €885 million in APD line with country EU regulations Amount paid in taxes would offset IAG’s emissions 10x over Sources: A4E, UK government 45 Note: dates above reflect the first full year these taxes were collected
Emerging layering of aviation ‘eco taxes’ in Europe Taxes do nothing to tackle climate impacts 46
EU ETS is a robust intra European scheme Climate action mechanisms: allowances EU Emissions Trading System (EU ETS) Aviation sector Scheme How it works • Aviation intra-EEA flights included since • EU ETS is world’s largest “cap -and- trade” • Cap placed on overall emissions from all 2012 scheme carbon intensive industries and then • Aviation’s inclusion has led to over 17 reduced each year million tonnes of CO 2 being reduced per • Managed by the European Commission • Companies buy annual allowances year in other sectors (EC) (EUAs) equal to the cap: • We expect intra-EEA flights to remain in • • Covers around 45% of EU greenhouse can sell allowances if they reduce the EU ETS emissions below their cap gas emissions • can buy extra allowances if their Next steps • Includes 11,000 manufacturing plants and emissions are above their cap • EC plans to review ETS and aviation power stations in the 28 EU Member • This ‘cap -and- trade’ approach means States and European Economic Area under 2019 Green New Deal plan companies either cut their own emissions • Continued industry lobbying of EU for or fund emissions reductions elsewhere, CORSIA to replace EU ETS as the driven by what is most cost-effective aviation’s instrument for addressing carbon emissions • The cost of allowances rises as supply of permits shrinks, driving reductions CO 2 47
Market based measures more efficient than taxes Climate action mechanisms: smart carbon pricing Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Next steps Scheme How it works • CORSIA is the only example of a global • Between 2021-2026, 75%+ of global • 2019/2020 - Monitoring, reporting and industry mechanism to reduce CO 2 international aviation emissions will be verification is underway to set baseline covered • 2021 - 2026 - Voluntary phase (81 states • Requires airlines to purchase carbon • From 2027 onwards, 90%+ of emissions participating) this means it is voluntary for offsets for flights between CORSIA- eligible countries, above 2020 baseline will be covered countries but once countries have signed up it is mandatory for airlines to • This is the mechanism to deliver industry • Global aviation industry expects to offset participate goal of carbon-neutral growth from 2020 2.5 billion tonnes of CO 2 between 2020- • 2027 - 2035 - Mandatory phase for all and 50% net reduction by 2050 2035 countries to participate • In 2016, the member states of ICAO (191) agreed to implement CORSIA • Baseline emissions monitoring started 2019 CO 2 After 2020, c.80% of the growth in international aviation CO 2 will be offset 48
From 2020 76%+ of the growth in air traffic CO 2 will be offset Climate action mechanisms: smart carbon pricing Source: ATAG 49
UK aviation has a pathway to meet industry target UK Sustainable Aviation pathway to meet 50% reduction by 2050 Do nothing scenario Value relative to Level of CO 2 emissions if no action taken year 2010 Do nothing scenario Operations / ATM Imminent Aircraft 2.5 Actions taken by aviation industry and Future Aircraft airlines Sustainable Fuels Reduced CO 2 emissions from: Action scenario (gross emissions) 1) Fleet modernisation and new aircraft 2 Market-Based Measures types 2) Efficiency during flights Net emissions 3) Sustainable fuels 1.5 2005 level net CO 2 emissions 1 (carbon neutral growth) Market-based measures Structured schemes to drive emissions Global industry target: reduction elsewhere 2050 0.5 1) CORSIA, ETS 50% drop in emissions (2005 baseline) 0 2010 2020 2030 2040 2050 Source: UK Sustainable Aviation 50 Note: chart shows 2016 data – SA currently working on a new pathway to meet Net Zero
IAG action plan
IAG’s gross emissions could increase by c.40% if no action is taken Potential scenario for IAG’s gross emissions if no action is taken Potential for IAG’s gross emissions if no action is taken other than business as usual aircraft fleet modernisation MT CO 2 50 c.+40% 45 40 35 30 Gross CO 2 emissions 25 20 15 10 5 0 2020 2025 2030 2035 2040 2045 2050 Note: scenario assuming long-run growth of 2.2% in RPK 52
c.80% of IAG’s traffic has no reasonable transport alternatives Most IAG traffic is on sectors over 1500km where there are no reasonable alternatives to air travel IAG CO 2 emissions IAG traffic (RPKs) by sector length International >1500km 76% 78% <1500km Europe 20% 22% Domestic 4% 2018 2018 53
IAG net zero plan in context of industry targets Aviation industry CO 2 targets 2010 1.5% pa fuel 2050 2010 - 2020 2020 efficiency 50% drop in 1.5% pa Carbon neutral emissions fuel efficiency growth from 2020 (2005 baseline) climate targets 2025 2020 2025 2030 2015 – 2020 2010 87.3 80gCO 2 /pkm 22 Net MT 2050 1.7% pa gCO 2 /pkm Net zero CO 2 efficiency (10% drop from (20% drop from emissions 2020 baseline) gain 2020 baseline) 54
Target 1: Industry-leading improvements in efficiency Competitors Rationale • Investing in fleet modernisation • IAG – 10% gross drop 2020-25 (5yrs) 10% • 143 aircraft to be delivered by 2022 improvement • easyJet – 10% gross drop 2016-22 (6yrs) in efficiency • Fleet age dropping from 11.4 to 10.2 years • Ryanair – 10% gross drop 2018-30 (12yrs) by 2025 by 2022 • KLM – 20% gross drop 2011-20 (9yrs) • Efficiency targets integrated into business • SAS – 25% gross drop 2005-30 (25yrs) planning and carbon reduction targets embedded across IAG Target • Over 50 initiatives across the Group to Average efficiency improvement p.a. 2020 Target improve efficiency 87.3 KLM IAG EasyJet SAS Ryanair 2025 80.0 gCO 2 /p-km -0.8% -1.0% -1.7% -2.0% -2.2% CO 2 55
Target 2: Net emissions will drop Competitors Rationale Reductions will be achieved by: 20% drop in • IAG – 20% improvement in net CO 2 • net CO 2 Fleet and operations: c.40% 2020-30 emissions by • • KLM – 15% improvement in net CO 2 Market-based schemes: c.60% 2030 2005-30 • Sustainable Aviation Fuels: c.5% • SAS – 25% improvement in net CO 2 2005-30 Working with regulators and partners to • Delta – net CO 2 has been flat since 2012 ensure successful implementation of 27MT CORSIA 22MT CO 2 56
Target 3: The first airline to commit to Net Zero CO 2 Competitors Rationale 100% drop in IAG is the first airline group in • The next ten years are crucial for industry net CO 2 the world to commit to Net Zero and governments to secure a cost-effective emissions pathway 2020 - 2050 • We believe this should be though the UN • Only small regional airlines have smart carbon pricing scheme for aviation: committed: CORSIA • IAG will deliver Net Zero - even if a global HarbourAir BRA all electric approach stalls we will still focus on an offsetting all 27 MT seaplanes in the flights from 2019 industry approach but at a regional level 2020s • We support ICAO’s work to agree a long term target by the next General Assembly in 2022 • We are working with regulators and other stakeholders to develop smart carbon pricing mechanisms to enable us to achieve net zero CO 2 by 2050 0 MT CO 2 57
IAG action plan has four main areas of focus Fleet and operations Sustainable Aviation fuels 1 2 • 142 new aircraft by 2023 including A320neo • $400 million investment in sustainable and A350, up to 25 to 40% more efficient than aviation fuels over 20 years aircraft they replace • Velocys project will produce fuel from waste • Continuing to incorporate carbon prices into that would otherwise go to landfill with 70% fleet planning decisions less CO 2 than fossil jet CO 2 • Investment in industry leading fuel efficiency • Applied for planning permission, first fuel 2050 software expected 2024, 400kt/yr by 2030 Carbon offsets and removals Disruptive innovation 4 3 • CORSIA implementation • Hangar 51 accelerator programme new sustainability category • Carbon neutral UK flights from 2020 • Supporting Carbon Capture & Storage • All Group duty travel offset development (working with Mosaic Materials) • Customer voluntary offset schemes • Supporting development of low carbon aircraft and propulsion 58
IAG’s action plan examples Fleet and operations: examples Sustainable Aviation fuels: Velocys 1 2 ↓ 9 MT (2012-2018) • IAG has a partnership with Velocys established 2018 • We are developing Europe’s first waste -to-jet-fuel plant, in South Humberside 2018 2018 2018 2018 Retracting CO 2 • Retrofitting Adjusting onboard Flightpath First fuel by 2024 and by 2030, 40 million litres of landing lights sustainable jet fuel are expected to be produced as lighter seats water use changes 2050 ↓ 570 t CO 2 part of this project ↓ 1,000 t CO 2 ↓ 200 t CO 2 ↓ 7,000 t CO 2 • In 2050, 30% of IAG fuel to be produced from SAF Over 150,000 tonnes of CO 2 savings to be delivered through more than 50 fuel efficiency projects in the next two years Carbon offsets and removals Disruptive innovation: Mosaic 4 3 • Mosaic Materials succeeded in Hangar 51 selection. They are an • BA is offsetting all domestic UK flights from 2020 early-stage carbon capture and storage (CCS) start-up • IPCC identified CCS as vital in every pathway to reach 1.5° • Around 400,000 tonnes of CO 2 will be offset from January 2020 global warming limit • We will be investing in a broad range of high quality verified carbon • CCS works by using special materials to absorb carbon from the reduction projects including natural climate solutions atmosphere or from industrial processes • This CO 2 is then transported to a location where it can be stored permanently 0 MT • Opportunity to combine CCS technology with our Sustainable Aviation Fuel plants to create net negative emissions jet fuel 59
IAG pathway to net zero CO 2 by 2050 after actions taken We will proactively work with partners to ensure successful delivery our 2050 goal MT CO 2 Do nothing scenario 80 New aircraft and operations Do nothing scenario Sustainable aviation fuels CO 2 emissions if no action taken 70 Action scenario (gross emissions) Carbon offsets and removals 60 Net emissions Actions taken by IAG 39% Reduced CO 2 emissions from: 2025: 80g CO 2 /pkm 50 1) Investing in new more efficient aircraft 2) Operational efficiency 3) Sustainable fuels 40 18% 30 Carbon offsets and removals 27MT 20 Includes structured schemes to fund 22MT emission reductions elsewhere: 43% 1) CORSIA, EU ETS 10 2) Voluntary offsets 3) Carbon capture technology 0 2020 2025 2030 2035 2040 2045 2050 60
Capital Markets Day 8 November 2019 40 tonnes carbon offsets purchased to compensate the emissions associated with today’s event
IAG committed to tackling a range of environmental issues Noise Waste and single use plastics Supply chain • A requirement for • On track to reduce Saving c.100 tonnes of single use plastic per year and there’s more to come. environmental standards noise per flight by 10% included in IAG Supplier between 2015-2020 Code of Conduct • BA and Aer Lingus rank Leading European IAG and British Airways • Screening suppliers to in the top 5 airlines in LIFE+ zero cabin waste head office catering project Heathrow’s “Fly Quiet assess risks including changes have saved Replaced plastic wrap and Green league” in replaced plastic cups environmental risks over 1.5 million single- on blankets and on short haul routes with use plastic cups, 2019 (out of 50 airlines) 500K earphones saving • Shifting UK transport of jet biodegradable bowls and cutlery . 500,000 plastic bags alternatives. fuel from road to rail saved 1 million cans and around 5,000 tonnes of 200,000 plastic Over 1M CO 2 in 2018 containers saved in Using an app to avoid Iberia lounges. water waste and no plastic bags given for on board duty free 62
Leading the airline industry on tackling climate change Our industry must follow our lead to earn its licence to grow and be truly sustainable We led the industry to commit to climate change targets in 2009 We are the first airline to invest in waste-to-sustainable aviation fuels in Europe 1 st airline group worldwide to commit to achieve net zero carbon emissions by 2050 63
The IAG investment case A unique structure that drives growth and innovation to generate superior shareholder returns Unique structure RoIC Sustainable EPS growth Portfolio of world- profitability class brands and Margin operations Total shareholder Global leadership Ordinary dividend positions returns Organic Cost efficiency Accretive growth Share buyback / Special dividend Inorganic Innovation Underpinned by environmental sustainability 64
IAGTech John Gibbs – IAG Chief Information Officer
My initial observations, thoughts and actions First 49 days Pre Next 3 (since 2 nd 2 nd Sept 2019 Months Sept 2019) ✓ ✓ • IT Strategy – 3 year vision and roadmaps Recognised recent Digital and IT issues CIO role on IAG Management Committee ✓ ✓ • Understood the challenges Merged Digital and IT teams across Group Current and future Enterprise Architecture ✓ ✓ • Immediate actions taken Great support from Operating Companies, Confirm the investment portfolio Management Committee and the Board ✓ Right levels of resource and investment ✓ • Continued focus on stability and cyber Refresh IT operating model ✓ • Greater transparency – plans and progress Strategic foundation projects launched ✓ Completed 80% of discovery activities ✓ Operational stability changes being made ✓ Reenergised programmes of work • Accelerate programmes ✓ IAGTech - new identity for Digital and IT ✓ New vision, purpose and values ✓ New IT structure with clearer accountabilities ✓ Upskilling leadership team 66 ✓ Revised governance structure
Leveraging the combined power of our Digital and IT teams Digital IT (Over 1,000 experts and a world class IT supply chain) Focused on delivering….. “Technology Excellence” 67
A simple vision but what does it mean? “Technology Excellence” Internal perspective External perspective We will be industry leaders in the use of technology ... We will be the best at what we do ... • • Challenging the norm through the creative use of technology Excellent relationships and partnerships , and extremely responsive • • Focused on delivering great service throughout the customer journey We are highly innovative, technology leaders • • Enabling the business to operate in the most efficient and effective manner A clear vision, strategy and enterprise architecture that drives investments • • Empowering our employees We consistently deliver products and projects to time, cost and quality • • Trusted by our stakeholders Our services always meet service level agreements • A secure, compliant environment • IT operating model • Our people are fully empowered , with the right skills and tools • The exemplar for the Groups culture and behaviours • Continually strive to improve 68
To deliver the vision we’ve refocussed around a common purpose “To increase shareholder value, accelerate business performance, delight customers, enable employees, and protect our business through the innovative and agile use of technology and data.” We do this by: • Researching and piloting innovative use of technology across all our value streams • Developing a new technology vision, strategy and enterprise architecture • Delivering new business and technology capabilities in an efficient and effective manner • Providing resilient services that deliver required levels of availability and performance • Protect the business from cyber threats and risks , and ensure our compliance Leveraging all of this across • Running a professional function, delivering great value and developing our capabilities the IAG Group to maximise the opportunities • Partnering with the individual businesses to understand and exceed their expectations • Leveraging the power of our capabilities for the benefit of the community and environment • Providing world class, trusted technology leadership and partnerships 69
..and a new IT operating model with clearer structure and accountabilities IAG Management Committee CEO Loyalty General Strategy CIO Cargo Chief of Staff CFO OpCo CEOs “Avios” Counsel e.g British Airways Technical Office of the GBS Assistant CIO and Transformation Research & Technology Operations & DevSecOps * Programmes Cyber Innovation Office Infrastructure HR • • Running Services Cybersecurity • • Horizon Scanning Strategy Developing new capabilities • - Strategy Risk • • Research Architecture • • • Project Centric - Design Compliance Product Centric • Investments - Enterprise Finance OpCo CDIOs • • Waterfall & Agile - Transition Agile methods • Proof of Concepts - Reference • • Project teams - Operations DevSecOps teams • Pilot projects - Solutions - Continuous • Design Assurance Improvement Procurement * Development, Security & Operations 70
..with more transparency via a new governance structure Board Level IAG Audit IAG Board Committee Management Committee Level IAG Management Committee NOTE: Operating Company Level IAGTech Leadership These are the OpCo Exec IAGTech primary governance Audit Board Leadership Team meetings but others do exist alongside Cyber & Risk A regular drumbeat: process governance Week 1: Strategy & Enterprise Architecture (inc. heatmap) – such as quality Strategy & Week 2: Portfolio & Project Review Week 3: Operational Performance Portfolio gates. Week 4: Cyber, Risk & Compliance The aim at the Product & operational level is Project IAGTech Operational IAGTech Suppliers to have as light a touch as possible, Operations & Strategy & Operations & People Strategic empowering our Infrastructure Infrastructure Portfolio teams to do things in an agile manner, Product & Cyber & Risk Cyber & Risk Cost Operational whilst not losing Project control or quality. Weekly stand-ups 71
..and a “new” approach to developing our talent Launch of Guilds across IAG Tech • Refresh of Professional Development Framework linked to Architecture Scrum DevSecOps Infrastructure professional membership organisations such as the British Guild Master Guild Guild Guild Computer Society Central & GBS Digital & • Launch of a new IAGTech Apprentice & Graduate scheme IT linked to the already successful Operating Company schemes OpCo (x8) such as that in British Airways Digital & IT • Rollout of the Academy approach in Vueling but expanded to Supplier Digital & IT include driving Digital skills across the wider Group not just the IAGTech teams • Targeted Coaching and Mentoring to lift our professionalism Guilds are communities that share and co-develop best practice in and capabilities in key roles throughout the organisation specific areas, e.g Architecture. They define the standards to be used, e.g. TOGAF, and the processes, tools and skills needed. They promote increasing levels of professionalism across the organisation • Manpower plan with clear Rotation strategy to develop as well as continually driving for increased efficiency and effectiveness. A guild can be led from the centre, one of the leadership at all levels with breadth as well as depth operating companies or even a supplier. We can also then track the level of maturity across the business using a RAG status. The • Create an exciting place to work that includes contributing RAG status on the chart are examples and not reflective of actual maturity which will be determined in Q1, 2020 as the guilds are to the community, e.g. through STEM, charity, etc launched. 72
Exploring the vision: Creative use of technology Proven track record This year • • Launched in 2016 7 categories: • Airport operations • • Targets business challenges Future Cargo Logistics • New Products & Services • • Delivers real world outcomes (pilots) Disruption Management • Future Customer Interaction • • Four annual events now held Sustainability • Wildcard • 21 finalists in first three years • 474 applicants from 52 countries • Proof of concepts include: 3 rd September – Pitch Day • • Autonomous Dolly for baggage movement • Robotic handling of baggage • 11 finalists • Drone for foreign object damage detection • Foreign objects on ramp detection • • Mindsay Artificial Intelligence WhatsApp 10 week collaboration process • Remote controlled tog for aircraft push • Final demonstrations – Jan 2020 73
Exploring the vision: delivering great service throughout customer journey Big Data / AI / ML Augmented Reality Self Check-in Digital Media Onboard Wi-Fi RFID Banking Mobile app “Baggage Dynamic pricing models, Self Check-In and Bag Digital newspapers .air service launched Digital bag tags provide Monese current account Sizer” allows customers to e.g. for ancillaries, offers Drop speeds up the replace printed press introducing the most enhanced tracking of linked to Avios loyalty so customer choice and check the size of their check-in process saving weight and helping advanced connectivity baggage and reduces lost customers can earn Avios maximises revenue luggage at home or on the the environment service / miss directed bags points whilst spending move Check-In, Arrivals Post Flight Trip Planning & Preparing to On Board At Home Lounge & Destination / Travel Loyalty Booking Travel & In-flight Boarding Airport Activities Voice Smart TV Bag on Board Biometrics eCommerce onboard ibot / Chat Alexa and Google Assistant Living App available on Service to pick up bags Facial recognition Pair and Pay allows Using Mindsay voice based services such Smart TVs providing real from start location, check technology employed access to wi-fi services conversational AI we have as departure information time customer information them in, and then deliver across the passenger onboard the plane launched industry leading and boarding pass and services before to the destination for journey (check-in, bag- WhatsApp channel for activation customers start travel hassle free baggage drop, security, boarding) general information 74
Exploring the vision: operating in the most efficient and effective manner Paperless Workflows Connected Operations Robotics Artificial Intelligence Machine Vision Drone Technology Simple, seamless human Robotics being used to AI technology being used Accelerating aircraft Paperless departures is Machine Vision and AI to centric approach to automatically load to spot foreign objects on being used to speed up detect the events of an inspection for damage support scalable real-time baggage to protect the ramp to protect the aircraft turn-around and aircraft turnaround giving connected operations handlers aircraft improve on-time better visibility for real across functions departures time decision-making Planning & Passenger Baggage Ramp Aircraft Control Services (@ Departure Inflight Arrivals Services Management Maintenance (Strategic , Long Term, Airport) Operational & Airport) Blockchain Remote Control Auto-Dolly Auto-Jetty Airport Ops Flight Ops Predictive Analytics Sharing reliable real-time Remote controlled tugs for Autonomous dollies being Autonomous jetties speed Realtime monitoring and Inflight monitoring of all Advanced analytics information between the pushing back aircraft from trialled to move bags from up boarding and control of all planes at the aircraft during flight inc. helping to predict issues airline and the fuel the jetty sortation to the aircraft disembarking whilst also airport from stand, to identifying any issues and and then perform suppliers reducing accidental taxiing, to take-off readying maintenance preventative maintenance damage to aircraft to increase availability 75
Exploring the vision: empowering our employees Customer Contact Crew Devices Business Intelligence Operational Planning Picture Picture Customer Relationship Insights into the Fact based decision Launched projects to Management (CRM) customers to enable making based on real-time replace the separate solutions being deployed bespoke personalised data analysis aircraft, pilots and cabin service to be delivered crew scheduling system onboard with one solution Brand & Customer Pilots & Cabin Crew Back Office & Commercial Teams Operations Teams Engineering Teams Management Teams Experience Teams Teams Support Teams Advanced Analytics Engineering Finance & HR Picture Route planning to Launched projects to SAP Financials deployed maximise efficiency and replace different and SAP Success Factors operational effectiveness Maintenance, Repair and projects launched Overhaul systems with one strategic product 76
Exploring the vision: empowering our employees – a brief dive into data Using Vueling as a case study… 77
Exploring the vision: trusted by our stakeholders Identify Protect Infrastructure Partnering with world- Roll out of state-of-the-art Existing datacentres have class providers for all endpoint protection had their UPS and backup security services (Crowdstrike) generators renewed (IBM & TCS) Legacy data centres Business Cyber Security Continuity Detect Respond Recover Infrastructure Increasing coverage for Ensure effective response High value data and New data centres have our Security Operations through regular cyber systems prioritised for been identified, Centre incident exercising rapid recovery infrastructure stood up and application migration commenced 78
Exploring the vision: we will be the very best at what we do Hangar 51 Culture Technology Expertise DevSecOps We will accelerate the We will be changing the We will be recruiting We will continue to train adoption of innovative culture of Digital & IT qualified and experienced staff in DevSecOps and ideas through tighter professionals to execute Agile frameworks integration of Digital & IT our vision Innovative Empowered Professional Transparent Agile Process & Governance Tooling Academy Real Time Monitoring Agile Spaces We will be simplifying our We will be deploying the We will extend the existing We will apply intelligent We will continue to move processes and right tools including monitoring of all our Academy to drive a Digital to more agile work spaces governance automation of areas such First capability across IAG environments as testing 79
Exploring the vision: there is even more…. VISION & ACCELERATING DIGITAL & IT ENTERPRISE OUR EXPLOITATION ARCHITECTURE PLANS There are 1000’s of areas where Digital and IT can be exploited to increase shareholder • New Distribution Capability / New value, accelerate business performance, Distribution Model – further deliveries delight customers, enable employees, and We will be developing a new vision and • Global Loyalty Platform roll-out protect our business. enterprise architecture in Q1, 2020 • Group HR Platform roll-out A robust portfolio management process will • Revenue Management investment be used to prioritise these and maximise the benefits from our investments. • Windows10 roll-out 80
In Summary…. ✓ Recognised the recent Digital and IT issues ✓ Understood the challenges and taken immediate actions ✓ Recognising the importance of Digital and IT, we have appointed a new CIO on the Management Committee ✓ We have a clear journey…… ✓ We have allocated sufficient funding and resources ✓ We’ve created IAGTech with a renewed vision, purpose, values, and structure ✓ We’re investing in the foundations, the correct strategic solutions and innovative ideas ✓ There has never been a more exciting time to be part of IAGTech 81
IAG Loyalty Drew Crawley - Avios CEO Strictly Confidential
Transforming Our Approach to Loyalty • Change in operating model of Avios Group Ltd within IAG − transition to IAG Loyalty , recognising the integral nature of loyalty across multiple business units • Significant investment undertaken in loyalty technology platforms – first phase now delivered, allowing faster growth of our business, and customer & partner enhancements • Constantly improving our customer loyalty programmes, with major enhancements to come • Currency to be of greater utility and ubiquity with more ways to collect and use Avios • Diversifying and growing our partnerships • Invested in new capabilities and management team Lo Loyalty alty 83
We've created The Centre of Excellence for loyalty across IAG Increased scope, and upweight in capabilities Avios Rewards Currency Financial Management Programme Design* Contact Centre CRM, Data Science & Insight* B2B Partner Management Digital Services* Lo Loyalty alty 84 * Capabilities with increased resources, investment, and wider scope across IAG airlines and partners
Loyalty market trends – our perspective Continual change better Structure – airline relationship crucial to Omni device journey – customer imperative programme Predictive data and use of AI for Payment & Loyalty converging relevance Programme Design - Flexibility & Trust, security & data control essential Personalisation vs rules based Lo Loyalty alty 85
Our programmes and Avios network 86
Avios is the currency used across all IAG loyalty programmes, complementing airline status and customer recognition benefits Our Customer Programmes Core Collect & Redeem on Status & Tier Collect & Redeem Programme Car Hire, Hotels & Benefits on Flights Features Experiences Loyalty Lo alty 87 87
Our loyalty programmes are of significant scale Active member numbers are increasing EUROPE 7M active REST OF THE WORLD 34 M AMERICAS 1M active 1M active members globally enrolled in our programmes 9M active members* Lo Loyalty alty • Data as of September 2019 - members of all IAG loyalty programmes 88 88 • * Active = A Member who has collected or redeemed Avios in the last 12 months
Our programmes are enhanced by our oneworld membership, creating value to our customers, and partners 1,100 destinations Partners experiences hotels Lo Loyalty alty 89 * Source: /www.oneworld.com/news/20-years-20-facts-oneworld
Why loyalty matters to IAG Strictly Confidential
Accelerating growth in key metrics Avios issued Avios redeemed 150bn+ 120bn 115bn 110bn+ 104bn 93bn 86bn 83bn 2017 2018 2019E 2020E 2021E 2022E 2017 2018 2019E 2020E 2021E 2022E Loyalty Lo alty 91 91
Driving strong profitability, and cash into the Group Net Cash generated from Avios growing from c£400m in 2019 to over £600m by 2022 AGL Operating Profit (2018) Net Cash Generated into IAG £600m+ c£400m 20% +10% c£350m c£300m Operating Operating Profit Margin Profit Growth 2017 2018 2019E 2020E 2021E 2022E Loyalty Lo alty • Net cash generated included cash generated from the sale of Avios to 3rd party partners, net of cost of redemption to 3rd party partners and net of external AGL 92 92 overhead costs.
The loyalty engagement cycle Powered by compelling programmes, data, and attractive partners Fly Enrol in Redeem Avios Programme Issue Avios Issue Avios From Partner from flying Purchase from Non-Air Partner Loyalty Lo alty 93
Loyalty programme membership drives behavioural change Even newest members grow in IAG value after joining 3x 5x value value IAG customer not Entry Level Entry Level enrolled in our Member who Member who programmes collects while flying collects while flying and with other Avios partners Lo Loyalty alty • Multiples calculated by comparing UK-based BA Executive Club Blue tier customers to BA customers not enrolled in any Airline Loyalty Program 94 • Data based on January 2018 to December 2018 results • Value is defined as group margin from combined company profit and loss statements
Loyalty drives significant value to IAG, with headroom for growth A growing proportion of the IAG business comes from loyalty programme members 33% 38% 44% of passenger journeys are of passenger journeys on top of flight revenue comes from made by programme members routes are made by programme members programme members Lo Loyalty alty • Representative of all IAG loyalty programs 95 • Top routes is the 10 routes with highest passenger numbers by airline, weighted by volume • Data as of September 2019
More Avios are issued from ‘everyday spending’ than flying… Our collection partners add breadth to our programmes, and bring cash into the group 220k 51% 930+ £40bn Avios collected Avios collected is through 130 Direct Partners and Spent collecting everyday spending – not per minute 800+ Affiliate Partners through Avios each year through flying* eStore/Reward App Lo Loyalty alty • Data as of September 2019 96 96 • 51% of collection on everyday spending is based on volume of Avios issued
…returning this value back to IAG through spend on travel rewards Reward flight growth is driven by usage of the Pay with Avios product on all airlines 89bn 8m 16 900 Avios spent on travel and Reward flights Redemption transactions Reward seats experiences each year taken each year every minute booked per hour Lo Loyalty alty • Data as of September 2019 97 • Reward flights include any flight where Avios has been used, Standard Reward Flights & Pay With Avios
Case study – Unconstrained redemption opportunities Growth in Reward … and on key routes Flights (BA) Heathrow to August 2016 August 2019 Edinburgh 33% Growth in +22% reward seats booked Growth in reward flights since 2016 = additional reward flights = average reward flights Loyalty Lo alty • Data depicts growth in reward seats used, not capacity 98 • Reward flights include any flight where Avios has been used, Standard Reward Flights & Pay With Avios
Transforming our loyalty offer Strictly Confidential
We have modernised our core loyalty technology Significant improvements to speed of partner integration and customer changes Products built on top of the platform enable faster customer Online Collection Platform Rewards App Platform Developer Platform change live on Aer Lingus live on British Airways live for all existing and Gone from 70 changes a year to and British Airways prospective partners several per day launching soon on Vueling Our APIs enable faster integration of our products for partners Open APIs Monese integrated in 6 weeks vs previous examples at 6 months Group Redemption Our new platforms remove Group Loyalty Platform duplicated group systems Service GLP transforms 3 loyalty banks launching soon on into 1 British Airways Loyalty Lo alty 100 100
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