IberiaIberia 200320032003-2005:--2005:2005: 33 YearYear VisionVision
XabierXabier dede IralaIrala ChairmanChairman && CEOCEO Industry Challenges
•Market and business model specialisation: Define the service model for each segment
•Cost pressures by Low Cost Carriers
•Focus on customer: service RedefinitionRedefinition ofof differentiation and customer loyalty traditionaltraditional airlineairline programmes businessbusiness modelmodel •Industry consolidation
•Efficient portfolio management and increase specialisation bringing in new partners
•Security, environment, infrastructure Challenges and Opportunities for Iberia in 20032003---20052005
Good positioning in costs Expansion potencial compared to other network at Madrid and Barcelona carriers and potential to airports (2004-2005) improve them
CompetitiveCompetitive environmentenvironment forfor IberiaIberia 2003-20052003-2005
Leadership in Latin America will allow to take High speed train (AVE) advantage of the growth coming into operation potential in this region at the end of 2004 Expansion Potential in European Airports
Passengers growth CAGR 99-04 (%) New runways in 2004 8.5 2 in Madrid 1 in Barcelona 6.5 6.5 5.3 New terminals 5.0 Madrid in 2004 4.0 Barcelona in 2005 3.1 Air Traffic Control 1.5 investments 0.8 Orly El Prat Schipol Barajas Gatwick Gaulle Frankfurt Heathrow Fiumicino CapacityCapacity growthgrowth 2004-20062004-2006 de Charles Madrid Madrid 30-40% BarcelonaBarcelona The Expansion in Madrid and Barcelona Will Allow IberiaIberia’’’ss Growth
Madrid expansion in 2005 Barcelona expansion in 2006
Mov./hour Mov./hour
125 100 5% 20 98 +2 5% 100 +3 75 18 70 78 75 52 50 50
25 25
0 0 Capacity Capacity Capacity Capacity Capacity Capacity 2002 growth 2005 2002 growth 2006 2002-2005 2002-2006 Leadership in the EuropeEurope---LatinLatin America Market
Iberia´s leadership will allow to benefit from the potencial growth of this region Iberia has a superior product in: Number of destinations Number of non-stop flights Daily frequencies
16,0%Market share evolution Europe-Latin America
14,0% Iberia
12,0%
10,0% Air France KLM 8,0% British Airways Lufthansa 6,0% 1998 1999 2000 2001 2002(1) (1) January-September 2002 Unit Costs Significantly below the Average
January-December 2001 11 SAS
10 Lufthansa
British Airways 9 Air France Austrian Airlines 8
7 Low Cost Carriers Iberia Euro Cents/ASK**
6 KLM
5 600 800 1.000 1.200 1.400 1.600 1.800 2.000 Average Stage Length (Kms)*
Date for period January - December 2001, except Ryanair and Easyjet fiscal year 2001. Variations Jan-Dec 01 with respect to Jan-Dec 00 * Source: AEA **Operating costs (less 33% of Operating Leases) less Other non-airline Revenues Cost Differential Iberia-Low Cost Carriers
Areas Identified Action plan under way Gap narrowing
32% Productivity (Plane & Crew) 100% 90% 80% 27% Commercial 70% & Distribution 60% 50% 40% 24% Customer service 30% 20% 9% Maintenance 10% 4% Overheads 0% 4% Others 100% DIFFERENTIAL AVE (high speed train) MadridMadrid---BarcelonaBarcelona 2005
Market distribution Train-Air transport M pax 8
1.9 6.5 3.3 6 4.6 Iberia will carry around 2 million 4 3.2 passengers, a similar level as in 1997/98
2
0 Market Mrket Total Train traffic Air traffic 2005 growth market 2005 2005 without AVE 2005 AVE
IberiaIberia willwill redeployredeploy resourcesresources fromfrom thethe airair shuttleshuttle toto otherother routesroutes The new air transport business model needs to be built on three main lines
Domestic/Europe
DefendDefend point-to-pointpoint-to-point traffictraffic •• BeBe competitivecompetitive inin costscosts (transferring(transferring thethe advantageadvantage toto prices)prices) •• WideWide rangerange ofof destinationsdestinations andand frequenciesfrequencies
Domestic/Europe/Long Haul Europe/Long Haul
RetainRetain businessbusiness revenuesrevenues ContinueContinue toto efficientlyefficiently provide connecting traffic to •• MinimiseMinimise businessbusiness provide connecting traffic to long haul routes capacitycapacity reductionsreductions long haul routes • Ensure connectivity of •• MaintainMaintain serviceservice andand • Ensure connectivity of Madrid and Barcelona priceprice differentialdifferential Madrid and Barcelona
The limits set by the current model require changes in:
✜ Mix ✜ Destinations ✜ Density ✜ In-flight service ✜ Schedule Iberia Will Grow Taking Advantage of the Expansion Capacity of Madrid Hub
Domestic +3.6% -1.5% +3.6% 15
10
Capacity 5
MM ASK’s 0 2002 2003 2004 2005 100 7,4% Europe +11.7% +17.3% 1,5% +5.7% 20 +7.7% +6.4% 75 +5.5% 9,2% 15 10 50 5 0 25 2002 2003 2004 2005 Long Haul +12.3% 0 +8.7% 40 +5.3% 1998 1999 2000 2001 2002P 2003E 2004E 2005E 30 20 10 0 2002 2003 2004 2005 Although Incorporating a High Level of Flexibility
Total Flexibility 170 -19%
145 30 Flexibility 137 27
LongHaul -30% 21 •Non renewal of 17 Operating Leases
•Cancel 9 options
•Cancel new hiring of Flexibility 118 140 116 7 Wet Leases -17% Short/Medium haul
12/2002 12/2005 12/2005 Base case Flexibility case Efficient Management of the Business Portfolio
New Business Model Independent Legal Units Integrated in Holding