Sin ttulo de diapositiva

1
Flexibility and cost cutting Reaching
targets Sumaq Summit 05

2
Business Description
3
Contribution to Revenues by Activity 2004
Revenue Distribution
Passenger Transportation77,2
Handling 6,2
Rest 8,6
Cargo5,6
Maintenance 2,4
4
Passenger Transportation Three Main Markets
ASK Distribution
Contribution to Revenues by Region
Medium Haul31.0
Spain 36.8
Long Haul32.3
5
The Turnaround
6
Transformation Process in Iberia
7
The Director Plan II (2000-2003)
2000- Until September 11 2001

• Strong growth of the European network
• Development of customer service plans
• Launching of Iberia.com and electronic ticketing
• Continuation of fleet renewal program
• Launching of e-procurement project
• Privatisation Strategic shareholders and IPO

From 11 September 2001
Anticrisis Plan
8
Anticrisis Plan
Quick and flexible adjustment to demand evolution
Increase Operating Results
Selective approach to strategic markets
Decrease unit costs
9
Profitability Evolution
EBITDAR Margin
EBITDAR (million )
02
00
01
10
Competitive Strengths
11
Focused Growth Strategy in Key Markets
Maintaining current leadership in Europe to
Latin America routes
Strengthening market presence

• Feed the Europe to Latin American routes
• Increase in frequencies and direct flights rather
  than from new markets

• Improve product offering
• frequencies
• connectivity
• Daily flights to all Latin American capitals,
  even 2 in most relevant destinations

Focusing on yield reinforcement

• Selective increase in frequencies
• Increase in aircraft capacity
• Continue leveraging on regional flights with Air
  Nostrum

12
Strong Leadership in Latin America
Europe-Latin America Market Share 2000-2004
17.2
Total traffic
18.9
Business traffic
18
16
14
()
12
10
8
6
2000
2001
2002
2003
2004
IB
AF
LH
Varig
KL
BA
13
Unit Costs Significantly Below Industry Average
SAS
January-December 2004
Lufthansa
Air France-KLM
Euro Cents/ASK
British Airways
Low Cost Carriers
EasyJet
Ryanair
Average Stage Length (Kms)
14
Expansion Capacity in our Hubs
Madrid and Barcelona are among the fastest
growing airports in Europe
Barcelona expansion to 2007
Madrid expansion to 2007
2004 2 new runways 1 new terminal
2004 1 new runway 1 new terminal
() IB forecast
15
Nine Consecutive Years of Profits
96 97 98
99 00 01 02
03 04
Net Profit ( M)
16
Strong Balance Sheet
Gross Cash Position December 2004 1,546.5 M
340
-144
-331
50 of leverage if we include the off balance
sheet debt
-707
-938
-1,153
1999 2000 2001 2002
2003 2004
17
Strategy for Value Creation 2003-2005
INCREASE IN ASSET AND HUMAN RESOURCE PRODUCTIVITY
COST REDUCTION FOCUS
VALUE CREATION
FLEXIBILITY
18
Cost Differential Iberia-Low Cost Carriers
Areas Identified
Action plan under way
Gap narrowing
DIFFERENTIAL
100
The Director Plan will narrow this differencial
by 60 in 3 years
19
Reducing Costs
Impact in 2005 MM/ Euro
Director Plan
Asset utilisation 35-45
Personnel costs 65-75
Commercial costs 100-110
Service on board 40-50
Other costs 110-120
350-400
Note Targets of cost reductions over base case
2005
20
Adapting the Business Model of Iberia. New
Products

• The short / medium haul economy product will be
  transformed Unbundling the product
• The proposal offered to business traveller will
  continue to be enhanced

Modifications to Service Model

• Migration to a pay as you go model
• Simplification in 2003 (1st phase)
• Introduction of pay-as-you-go in 2004
• No change

• Improvement of passenger services
• Fast track services
• Quality meals
• Personalised passenger treatment (CRM)
• Introduction of New Business Class
• Entertainment on board
• Communications
• Flat Seats
• Personalised passenger treatment (CRM)

Short Medium Haul
Redeployment of resources
Long Haul
Economy
Business
21
Unit Costs Evolution
2004/2003
7.9
Fuel
-3.9
-4.2
-5.0
-6.2
Nav. aids Traffic levies
Total
-8.7
Aircraft rentals Amortization
Personnel
Rest
-6.8 ex fuel
-28.1
-30.5
Commercial
On-board service
22
Strong Improvement in Asset Utilisation
Block Hours/Day
23
Further Improvements

• Optimisation of fleet Increase number of seats
  per aircraft

162

• Densification effect 2005/04
• Short and medium haul 5.7
• Long haul0.9

Nº of seats
150
260
194
116
352
132
249
186
109
120
342
24
Personnel Productivity
23
25
Cost Reductions The Plan on Track
Impact in 2005 M
Achieved in 2004
Director Plan
2005E
Asset utilisation 35-45 17
100
Personnel costs 65-75 42
100
Commercial costs 100-110
66 100
Service on board 40-50
37 100
Other costs 110-120 86 100
350-400
100
60
Note Targets of cost reductions over base case
2005
26
2005 Flexibility - Remains a Key Tool
Total Flexibility -12

• Non renewal of Operating Leases
• (-6 aircraft)
• Non exercise of options (-4 aircraft)
• Cancel new hiring of Wet Leases (-3 aircraft)
• Delay deliveries
• (-2 aircraft)

Long Haul
114
Short/Medium Haul
12/2005 Base case
27
Targets of the Director Plan 2003-2005
Sensitivity of targets to fuel prices 5
US/barrel
Targets 2005
Unit Cost
-1.7 p.p.
10-12

• 19

EBITDAR margin
-1.5 p.p.
The Director Plan was calculated with a fuel
price of 24.5 US/barrel
28
Efficient Hedging Strategy
Fuel

• Hedging 2005
• 1 H 90 at 37.5 USD/barrel
• 2 H 30 at 42 USD/barrel

Currency risk

• Balance Sheet Fully hedged
• Operational Flows Approx. 900 M/ short
  position. 80 hedged

Interest rates

• 85 fixed or capped / 15 floating

29
And the future..
30
Challenges and Opportunities for Iberia
Expansion potencial at Madrid and Barcelona
airports from 2006
Good positioning in costs compared to other
network carriers and potential to improve them
Competitive environment for Iberia 2006-2008
Leadership in Latin America will allow to take
advantage of the growth potential in this region
High speed train (AVE) coming into operation at
the end of 2007
31
Short and Medium Haul Fleet Evolution
Iberia, first European network carrier with a
single short and medium haul fleet
32
Short and Medium Haul Fleet Renewal

• Up to 79 aircraft (30 firm 49 options) to be
  delivered from 2006 to 2011
• Cost reductions
• Fuel -19
• Maintenance -23
• Substantial reduction in aircraft rentals with
  respect to previous contract
• More savings due to commonality
• Mostly to be financed through operating leases

33
And Still More Improvement Potential

• New areas to be developed
• New labour agreements Additional productivity
  and flexibility
• Simplifying the short and medium haul product
  Review and automatisation of handling procedures
• Improving turnaround times
• Opportunities for non-organic growth