Iberia Investor Seminar

12th December 2014 Investor Seminar - Agenda

Time Topic Speaker 08:30 Registration and welcome coffee 09:00 Opening speech A. Vázquez 09:20 ,EHULD¶V3ODQGHFuturo L. Gallego 09:50 Transformation vignettes I - Commercial Plan overview M. Sansavini - Boosting our RASK J. Harrison, B. Guillén - Focusing on the customer C. Martinoli, D. Bountolos - Enhancing the way we sell M. Henales, F. Martínez 11:00 Coffee break 11:20 Transformation vignettes II - Reducing our cost base J.A. Barrionuevo, A. García Torres - Achieving lean processes R. J. Hoyos, J. Elices - Transforming SH business N. Chernoff, F. Candela - Ensuring the right LH strategy N. Chernoff, A. Pimentel 12:40 The Iberia of the future L. Gallego, J. Sánchez-Prieto 13:00 Q&A 14:15 Tapas lunch 15:00 Airport transfer

2 Iberia has an ambitious medium term target, in line with the objectives set by IAG 2014e 2017-2020

Lease adjusted operating margin (%) c. 3% 10-14%

RoIC (real terms)1 (%) c. 4% 12%+

2 Equity FCF >0 200-300 (¼m)

Cash return to Sustainable cash generation shareholders

1 Real returns applicable to all airlines: (operating profit + leases*33%)/(adjusted depreciation*10) 2 Equity FCF: EBITDAR ± Rentals ± Interests - Taxes - Capex

Medium term planning Plan de Futuro goals 3 At CMD we showed you we had delivered on what we said two years ago; today we will give you more insight

2012 CMD objectives achieved Plan de Futuro« «LVVKDSLQJWKH,EHULDRIWKHIXWXUH

To stop ,EHULD¶V ‡ Plan de Futuro will allow Iberia operating cash burn ‡ Comprehensive plan aimed to reach positive results in by mid-2013 to radically change the 2014 after 6 years of ORVVHV« company ‡ «SURYLGHV,EHULDwith an To give Iberia a attractive strategic competitive cost ‡ 30 initiatives across all positioning in core markets base for long-term key areas of the company (specially Europe-LatAm) growth (15% capacity and 4,500 workforce ‡ «VHWVthe basis for profitability reduction) ‡ Continuous monitoring by and long-term growth top management - Margins in IAG target range To fund the from 2017 onwards transformation entirely - Strong growth prospects through ,EHULD¶Vown ‡ Full commitment to - Free cash generation from resources delivery 2014

Plan de Futuro Objectives 4 Iberia FRPHVIURPDYHU\FULWLFDOVLWXDWLRQ« Transformation Operating profit (margin %), m ¼ Plan

0.1 -10.7 -0.6 -2.0 -7.3 -3.9 5 -28 -98 -166

-351 -475

2008 2009 2010 2011 2012 2013

ASKs 66.1 62.2 62.3 63.0 60.1 52.4 (bn) Revenues 5,516 4,458 4,800 4,863 4,841 4,235 (¼m) Costs 5,511 4,933 4,828 4,961 5,192 4,401 (¼m)

Plan de Futuro Financial context 5

6 6

Plan de Futuro Futuro de Plan Industry context context Industry

restructuring restructuring commercial positioning positioning commercial

Legal restrictions in in restrictions Legal Outdated network and and network Outdated

ti

Unfavourable macro context context macro Unfavourable Inefficient cost structure structure cost Inefficient

structure structure

Corporate complexity complexity Corporate Change in industry industry in Change

External factors factors External Internal factors factors Internal

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,EHULD¶VWXUQDURXQGVWDUWHGZLWKWKHUHVWUXFWXULQJLQWKH1RY 7UDQVIRUPDWLRQ3ODQ« 1 Focus on core o Suspend non-strategic, loss-making routes / frequencies, close the gap in network cost, fleet and product and keep effective feed for the long haul network

2 Renewal of o Narrow the RASK gap to competition with a commercial action plan providing commercial plan a customer proposition that will ensure competitiveness

3 S&MH o Transform the short and medium haul operation, reducing the CASK gap to transformation low cost competition, delivering an efficient short and medium haul operation

4 Comprehensive o Negotiate salary adjustments and productivity improvements to close the gap labour in labour cost and achieve a competitive and flexible cost structure restructuring

5 Restructure non- o Secure competitive maintenance and handling costs for the airline core businesses o Discontinue non-profitable 3rd party activities

Plan de Futuro Restructuring context 7 «followed by the on-going Plan de Futuro

Plan de Futuro Restructuring 8 Plan de Futuro will allow Iberia to reach a positive EBIT in 2014 after 6 years of losses, as well as the long term objectives set by IAG Operating profit, ¼m

How do we Executionachieve this of goalPlan in ade sustainable Futuro 12%+ way? RoIC Positive 2012 2013

2014 2017-20

-166

-351

Plan de Futuro Objectives 9 Plan de Futuro is built around 5 principles comprised of 30 initiatives

Solid Simplicity Sound Profitable revenue and competitive comple- base flexibility stance mentary businesses

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Plan de Futuro Principles 10 Plan de Futuro is built around 5 principles comprised of 30 initiatives

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‡ Revenue management

Solid ‡ Marketing revenue ‡ New generation selling base ‡ Digital experience ‡ Product ‡ Customer experience ‡ Ancillaries

Plan de Futuro Revenue base 11 Plan de Futuro is built around 5 principles comprised of 30 initiatives

7RGD\¶VIRFXV ‡ Labour agreements ‡ Fuel savings Simplicity ‡ Crews and flexibility ‡ Flight ops. optimisation ‡ Ground ops. optimisation ‡ Redeliveries ‡ Contract leakage ‡ Overhead cost reduction

Plan de Futuro Simplicity and flexibility 12 Plan de Futuro is built around 5 principles comprised of 30 initiatives

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Sound ‡ Network optimisation competitive ‡ JBAs stance ‡ Fleet ‡ Airline MRO relationship ‡ Madrid Barajas hub

Plan de Futuro Competitive stance 13 Plan de Futuro is built around 5 principles comprised of 30 initiatives

‡ Components Profitable ‡ Engines comple- mentary ‡ Line maintenance businesses ‡ Heavy maintenance ‡ Opt. MRO processes ‡ HDL productivity

Complementary Plan de Futuro businesses 14 Plan de Futuro is built around 5 principles comprised of 30 initiatives

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‡ Cultural transformation ‡ Communication strategy ‡ Single data and MIS ‡ Future organisation

Plan de Futuro Style 15 Before the detail, we want to give you an overview of Iberia

Plan de Futuro Iberia overview 16 Iberia at a glance

‡ Revenues 2013: ¼4.8bn ‡ ASKs 2013: 52.4bn ‡ Employees 2013: 18,103

Airline Handling

‡ #1 HDL operator in : 41 airports (incl. MAD & BCN), with 7,000 employees ‡ Passenger, Ramp, Operation and Cargo to fit all needs for our 200 clients

‡ #1 airline in Europe ± LatAm and Spain through the ‡ Services include 310,000 aircraft movements and 73m MAD T4 Hub pax

Fleet of 32 LH & 41 SH aircraft ‡ Maintenance

‡ World-leading punctuality with >600 daily flights and 100 destinations ‡ Top 10 MRO global operator ‡ Maintenance and repair services for Line, Aircraft, Engines ‡ : LCC feeding and P2P from MAD T4 and Components (17 aircraft) Top-notch Industrial premises at MAD and BCN with 7 ‡ hangars (~200K sqm) ‡ feeding franchise (16 aircraft) ‡ ~100 international 3rd-party customers

Iberia organisational Plan de Futuro structure 17 Iberia flies to 101 destinations globally with a major LatAm footprint

ASKs 2014 (bn)

# destinations Africa & ME Europe 19% 4% 43 Europe USA 13% Domestic 11% 27 Domestic

14 LatAm

12 Africa & ME

53% 5 USA LatAm

Plan de Futuro Capacity breakdown 18 Iberia is the reference airline in Spain and the gateway between Europe and LatAm

Largest airline in MAD with a high presence in «offering the highest daily flights to LatAm WKH6SDQLVKGRPHVWLFPDUNHW«

Capacity from MAD & Spain Domestic Flights per day to LatAm1, (#) ASK 2014 (bn) 67 26 14 Other 5% 100% 11 Other 29% FR 18% 8 2% AV 3% 4% UX 22% LA 4% FR 7 UX 16% IB 26% 7 5 IB 42% VY 29% 4

4 MAD hub Spain Domestic 1 Excludes Caribbean Source: OAG

Plan de Futuro Market position 19 Our customers have a high degree of loyalty and affinity to Iberia

Iberia Plus FFP st Consideration, 1 choice (%)

Iberia 43

5.8 million Aprox. 30% 15 members revenue 11

Ryanair 10

Lufthansa 7 British 6 Airways Air France 5

easyJet 5 American 4 Airlines

Source: Brand Tracker Spain (Jan 2014)

Plan de Futuro Customer loyalty 20 Iberia has a fleet of 90 aircraft with full commonality

Iberia fleet as of December 2014

58 A320 17 32 A330-300 8 A320 13

A319 A340-300/600 12 24 A321 16

Long-haul Short-haul

Plan de Futuro Current fleet 21 Iberia is taking advantage of the significant opportunities being part of IAG brings What does IAG add to Iberia? What does Iberia add to IAG?

Financial strength: wRUOG¶Vlargest Solid leadership airline groups in the South Atlantic (¼18.7bn revenues)

Fleet renewal Significant Unique upside opportunities cooperation potential

(459 aircraft) opportunities ti ti

Strong Enhanced strategic cash contributor relevance to IAG

Revenue and cost Sharing of cost synergy benefits optimisation ( 700m gross EBIT ¼ best-practices impact)

Plan de Futuro IAG cooperation 22 But above all, the best asset of Iberia is the committed team that is making Plan de Futuro a reality (1/2)

Management Committee

CFO ± J. Sánchez-Prieto Network Planning Director ± N. Chernoff ‡ CFO at Iberia Express ‡ Senior Manager at IAG ‡ Head of Strategic Planning & Controlling at ‡ Strategy and Operations Director at AAR Corp. Uralita ‡ Consultant at Bain & Co. ‡ Director of Strategic Planning at AirNostrum ‡ Kellogg MBA

CCO ± M. Sansavini COO ± R. Jiménez Hoyos ‡ Chief Strategy Officer at Alitalia ‡ Pilot, previously at Iberia Express, Air Nostrum, ‡ Commercial Director Europe at AF-KLM Clickair, Spanish Air Force and Vueling both in Crew Training and Operations Quality department ‡ Executive MBA IMD

Directors

RevMan Director ± J. Harrison Head of long-haul RevMan± B. Guillén ‡ GM Market Planning at Air New Zealand ‡ RevMan Director at Avianca ‡ Director Planning at TACA ‡ Manchester Business School MBA ‡ Manager North Atlantic RevMan at KLM/NWA ‡ Cornell MBA

Marketing Director ± C. Martinoli Customer Experience Director ± D. Bountolos ‡ Product Director at Yell ‡ Former Madrid Deputy Director at Iberia ‡ Marketing Director Latin America ± TPI, ‡ Transport & Operations consultant at INDRA- Telefónica Group Europraxis ‡ LatAm Marketing Manager ICI ‡ PDD IESE Business School

Plan de Futuro Management profiles 23 But above all, the best asset of Iberia is the committed team that is making Plan de Futuro a reality (2/2)

Directors (continued)

LatAm Sales Director ± F. Martinez Digital Business Director ± M.A. Henales ‡ Managing Director France, Royal Caribbean ‡ CEO of Online Division at Orizonia Corporación ‡ Vice-President Large Market Europe, AMEX ‡ UIB MBA ‡ Global Corporate Accounts Director & GM ‡ INSEAD Strategic Leadership Programme Venezuela at Air France ‡ ESSEC MBA ± Sciences Po - Ph.D Fleet Planning Director ± A. García-Torres Strategy Director ± J.A. Barrionuevo ‡ Control & Planning Director at Air Nostrum ‡ Associate Principal at McKinsey & Company ‡ Industry Affairs Director at Air Nostrum ‡ Senior Associate at JPMorgan ‡ IE MBA ‡ INSEAD MBA

Head of Standards & Procedures ± J. Elices CEO of Iberia Express ± F. Candela ‡ Pilot & Instructor pilot at Iberia and, previously ‡ Planning and Management Control Director at at Air Europa and Spanish Air Force AirNostrum ‡ Weaponry Permanent Board member SAF ‡ Internal consultant at Nefinsa ± Uralita ‡ Consultant at Andersen Consulting

Alliances Director ± A. Pimentel ‡ President of ACETA (Spanish Airlines Association) ‡ Former Sub-Director of Aeropolitical Affairs at IB

Plan de Futuro Management profiles 24 Agenda

Ensuring the right Boosting our LH strategy RASK

7 1

Transforming Focusing on the SH business customer

6 2 The Iberia of the future

5 3

Achieving lean Enhancing the processes 4 way we sell

Reducing our Marco Sansavini ± Chief Commercial Officer cost base

25 Commercial initiatives included in the Plan de Futuro aim to generate significant incremental revenues

RevMan Ancillaries Product Brand Customer Digital New Generation Experience Business Selling

Commercial plan Initiatives 26 Agenda

Ensuring the right Boosting our LH strategy RASK

7 1

Transforming Focusing on the SH business customer

6 2 The Iberia of the future

5 3

Achieving lean Enhancing the processes 4 way we sell

Reducing our John Harrison ± Revenue Management Director cost base Beatriz Guillén ± Head of Longhaul Rev. Management

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Main issues

MAD-MEX Premium Resources and organisation 100%

50% Inadequate and inconsistent RevMan processes 0% Flown load factor load Flown 0% 50% 100% RevMan forecast accuracy Forecasted load factor MAD-MEX Economy 100%

Simplistic pricing strategies 50% Flown load factor load Flown Out of data system inputs and 0% parameters 0% 50% 100% Forecasted load factor

RevMan forecast Boosting our RASK accuracy 28 5HYHQXH0DQDJHPHQWKDGVHYHUDOLVVXHV« 

Main issues

Long-haul economy cabin fare ladder usage Resources and organisation (% of total bookings)

74% Inadequate and inconsistent RevMan processes

RevMan forecast accuracy 4 classes 26%

Simplistic pricing strategies 9 classes

Out of data system inputs and Structure Promo parameters

Historic pricing Boosting our RASK strategies 29 5HYHQXH0DQDJHPHQWKDGVHYHUDOLVVXHV« 

Main issues

Resources and organisation New PROS system focuses on more relevant data

Inadequate and inconsistent O&D significant point-of-sale, FY2013 RevMan processes 5,000

4,000 RevMan forecast accuracy 3,000 O&Ds 2,000 Previous Simplistic pricing strategies 1,000 PROS recommendation 0 Out of data system inputs and 50 60 70 80 90 100 parameters Share of Iberia passengers

Data inputs and Boosting our RASK parameters 30 «WKDWZHDUHFXUUHQWO\DGGUHVVLQJWKURXJKWKHLPSOHPHQWDWLRQRI best-practices, with significant upside potential Joint-effort/ coordination

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‡ Changed 50% of management team Pricing opportunities ‡ Separation between pricing and People demand/inventory LH mix Develop culture of initiative and risk-taking ‡ Peak-J class

‡ Rationalise system inputs ± significant O&D list Corporate Premium Systems ‡ Ensure data integrity Economy

‡ Dedicated support group SH

‡ KPIs and incentive plan LH Processes ‡ Analysis and quantification of actions & policies ‡ Standard use of systems across RevMan Economy Other Premium Increm. mix revenues

Boosting our RASK RevMan initiatives 31 Example: significant increase in LH structure fares usage and premium cabin revenue Actions LH structure fares usage 1H14 2H14e Improve spread of fare ‡ 37% 37% levels among the cabin to 31% 26% 23% 24% 26% 26% 26% ensure that Iberia is able to 18% generate sell up as flight fills up

BUEMAD MADMEX MADSAO MADSCL BOGMAD LH premium cabin revenue increase (1H14 vs. 2H14e)

‡ Introduce new types of 27% premium cabin products and segments to improve 14% revenue and load factor 10% 9% 9%

MADMEX LIMMAD MADNYC BOGMAD MADRIO

Usage of LH structure Boosting our RASK fares 32 Ancillaries: complementary flight services to increase cross-selling and to capture potential revenue, both in B2C and B2B

1 Revenues YTD2014 vs. 2013 ‡ Assigned seat Unbundled Seating ‡ 1st checked baggage core services ‡ Upgrading +165%

2 ‡ Charge for booking on hold Improved/ ‡ Paid access to lounge and/or fast-track customised Baggage flight services ‡ Comfort seat/exit row +40% ‡ Middle-seat free 3 ‡ Travel insurance Cross-selling ‡ Hotel reservations service to Upgrading passengers ‡ Rental cards ‡ Package holidays +157% 4 Selling services ‡ Advertising to Business ‡ Cash & Avios 2013 2014

Boosting our RASK Ancillaries overview 33 Examples of ancillaries: selling advertising space and new fare families New fare families: meeting the expectations and Selling advertising space needs of our customers

‡ New strategy for inventory management: ‡ First European flag-carrier launching (Sep µ) new fare structure for domestic & European Adding new inventory í flights, appealing to all market segments í Single inventory management ‡ Three different fares: offering three different prices and service levels: ‡ RFP launched for a single seller of all advertising (print & non-print): Basic Classic Flexible í Already selected new provider starting -DQµ For economy- Including one Changes not minded piece of penalised, customers luggage and a refund for a fee carrying only choice of seats and priority in hand luggage boarding

Expected higher revenues for ‡ Enlarge our customer base commercialising additional media ‡ Generate additional revenues by opportunities selling additional services

Boosting our RASK Ancillaries initiatives 34 Agenda

Ensuring the right Boosting our LH strategy RASK

7 1

Transforming Focusing on the SH business customer

6 2 The Iberia of the future

5 3

Achieving lean Enhancing the processes 4 way we sell

Reducing our cost base Carolina Martinoli ± Marketing Director Dimitris Bountolos ± Customer Experience Director

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Focusing on the ,EHULD¶V image customer 36 «IRUDQHZ,EHULD«

New look & feel New livery A new brand platform

Drive Talent

Affinity A new way to communicate «VXEVWDQWLDWHGE\DUDGLFDOWUDQVIRUPDWLRQRIRXUSURGXFWDQGservices centered on the needs of our customers and consistent with our revenues and costs

New LH product Brand & communication

Customer Innovation & mobility experience

Improvements implemented under a cost-effective mindset to maintain cost positioning (joint-tenders, service re-design)

Focusing on the Areas of focus customer 38 &XVWRPHUVSHUFHLYHWKHFKDQJHSRVLWLYHO\« Iberia brand perception by dimension November 2013

Leading September 2014

Young/vitalYoung/vital GenuineGenuine

Imaginative AccesibleAccesible

Expressive Intelligent

Energetic, Open, enthusiastic Cosmopolitan

Modern Honest

Source: Brand tracker Millward Brown

Focusing on the Customer perception 39 customer 39 «and the efforts in communication, product and services are increasing the consideration of the brand Communication impact on consideration to fly (%)

24 Encourages me very 24 34 much to choose Iberia 47 56 68 Encourages me to choose Iberia 23 32 34

It does not affect me 41 37 27

It is unlikely that I -9 -6 -1 -4 choose Iberia -2 -2 I will not fly with Iberia Nov Jan Sep 2013 2014 2014 Source: Brand tracker Millward Brown

Focusing on the Communications customer impact 40 Brand, product and service transformation is leading to a radical change in our customer's perception

Iberia Net Promoter Score1 )HE¶-2FW¶ (%)

18 16 Spend & loyalty 14 12 21% make >50% travel with Iberia 10 (vs. 2% of 8 unsatisfied) 6 25pp 4 Recommendation 2 0 x4 recommen- -2 dation propensity -4 YV³QHXWUDO´ -6 customer) Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 2

2013 2014

1 Net Promoter Scores measures difference between promoters (9-10 grade) and detractors (0-6 grade) 2 Last four weeks average (21/10 ± 11/11) Source: Iberia Customer Experience; BCG market survey to Spanish consumers

Focusing on the Net Promoter Score customer 41 In addition we are introducing profound ³FXVWRPHUexperience management´Definition & delivery are our main pillars

Customer journey standard services Inventory, ‡ Service standards definition and & customer consistency in journey assuring procedures delivery in all touch points

‡ Customer centric Loyalty and company personalisation transferring this multichannel new DNA to a plan personalised 6LQJOH,$*¶V service customer

Focusing on the Customer experience customer management 42 Old Surveys New Surveys

Focusing on the Surveys customer 43 Online feedback and employee's recommendation Online warnings & red flags - newsletters

Online Qualitative & Quantitative of each touch-point

Focusing on the Feedback channels customer 44 ‡ Position: CEO of a Spanish multinational Voice of the based in Houston customer ‡ Status: United & Iberia Platinum member

‡ More than 500 flights in last 3 years

Focusing on the Voice of the customer customer 45 Agenda

Ensuring the right Boosting our LH strategy RASK

7 1

Transforming Focusing on the SH business customer

6 2 The Iberia of the future

5 3

Achieving lean Enhancing the processes 4 way we sell

Reducing our cost base Miguel Henales ± e-Business Director Frédéric Martínez ± LatAm Sales Director

46 %RRVWLQJRXUGLJLWDOFKDQQHOLVRQHRIWKHSLOODUVRI,EHULD¶VVDOHV transformation

Main distribution channels

Travel Leisure travel management agencies companies

Online travel Digital platforms ± agencies Iberia.com

Enhancing the way we Distribution channels sell 47 Digitising Iberia - digital channel as the main route to building sales and customer relationships

Objectives

Improve ‡ Multi-channel How user experience ‡ Cover all customer journey ‡ Increase traffic

‡ Imbue the company with digital DNA ‡ Enhance conversion ‡ Customer intimacy

‡ Facilitate mobility

Develop ‡ Boost influence of digital channel ‡ Promote digital engagement channel ‡ New revenue streams ‡ Offer ancillaries ‡ Customisation

‡ Generate savings

Enhancing the way we Digitising Iberia sell 48