International Airlines Regulatory News (IAG)

SIX MONTHS RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (August 3, 2018) presented Group consolidated results for the six months to June 30, 2018.

IAG period highlights on results:

· Second quarter operating profit €835 million before exceptional items (2017 restated(1): €790 million)

· Net foreign exchange operating profit impact for the quarter adverse €66 million

· Passenger unit revenue for the quarter down 1.9 per cent, up 2.3 per cent at constant currency

· Non-fuel unit costs before exceptional items for the quarter down 4.5 per cent, down 2.0 per cent at constant currency

· Fuel unit costs for the quarter up 6.7 per cent, up 15.0 per cent at constant currency

· Operating profit before exceptional items for the half year €1,115 million (2017 restated(1): €950 million), up 17.4 per cent

· Cash of €8,146 million at June 30, 2018 was up €202 million on June 30, 2017 and adjusted net debt to EBITDAR improved by 0.3 to 1.2 times

Performance summary:

Willie Walsh, IAG Chief Executive Officer, said:

"We're reporting another good set of results in quarter 2 with an operating profit of €835 million before exceptional items, up from €790 million last year.

"There was a strong performance in both unit revenue and costs. At constant currency, our passenger unit revenue increased by 2.3 per cent while non-fuel unit costs went down 2.0 per cent.

"Unfortunately, French Air Traffic Control strikes continued to challenge our airlines' operations causing disruption to our customers. Vueling was particularly affected and incurred an additional €20 million of disruption costs in the quarter. These strikes are also having a significant negative impact on the Spanish economy and tourism.

"In July, LEVEL started flights from Paris Orly to Montreal and Guadeloupe. We are committed to accelerating LEVEL's growth and its fleet will increase to a total of seven A330-200 aircraft in Paris and Barcelona next year. Also, we launched LEVEL shorthaul operations from Vienna where it will have four A321 aircraft that will operate to 14 European destinations."

Trading outlook

At current fuel prices and exchange rates, IAG still expects its operating profit for 2018 to show an increase year-on-year. Both passenger unit revenue and non-fuel unit costs are expected to improve at constant currency.

LEI: 959800TZHQRUSH1ESL13

This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.

Enrique Dupuy, Chief Financial Officer

Forward-looking statements:

Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements can typically be identified by the use of forward-looking terminology, such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" and include, without limitation, any projections relating to results of operations and financial conditions of International Consolidated Airlines Group S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditure and divestments relating to the Group and discussions of the Group's Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. Other than in accordance with its legal or regulatory obligations, the Group does not undertake to update or revise any forward-looking statement to reflect any changes in events, conditions or circumstances on which any such statement is based.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2017; these documents are available on www.iagshares.com.

IAG Investor Relations

Waterside (HAA2),

PO Box 365,

Harmondsworth,

Middlesex,

UB7 0GB

Tel: +44 (0)208 564 2900

Investor.relations@iairgroup.com

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED INCOME STATEMENT

FINANCIAL REVIEW 

Operating profit overview

IAG's operating profit for the six months to June 30, 2018 was €1,115 million before exceptional items, an improvement of €165 million from last year. British Airways made a profit of €868 million before exceptional items (2017 restated: €740 million); Iberia made a profit of €102 million (2017 restated: €87 million); Aer Lingus made a profit of €104 million (2017 restated: €53 million) and Vueling's loss was €11 million (2017 restated: loss €7 million).

Strategic overview

British Airways closed its New Airways Pension Scheme (NAPS) to future accrual and British Airways Retirement Plan (BARP) to future contributions from March 31, 2018. The schemes have been replaced by a flexible defined contribution scheme, the British Airways Pension Plan (BAPP). The changes resulted in a one-off reduction of the NAPS IAS 19 defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million.

British Airways successfully launched a $608.6 million EETC bond issue to fund aircraft deliveries. The bonds were combined with Japanese Operating Leases with Call Option (JOLCO) of $259 million, bringing the total raised to $868 million. The transaction includes Class AA and Class A Certificates with an underlying collateral pool consisting of 11 aircraft: two new Boeing 787-9, delivered between March and April 2018, one Boeing 787-8 delivered in September 2017, one new Boeing 787-8 delivered in June 2018 and seven new Airbus A320 NEO aircraft, scheduled for delivery between April and October 2018. The Class AA Certificates ($409.8 million) have an annual coupon, payable quarterly, of 3.800 per cent and the Class A Certificates ($198.8 million) have an annual coupon, payable quarterly, of 4.125 per cent.

On 28 June, IAG launched its new shorthaul low-cost Austrian subsidiary, branded as LEVEL with flights from Vienna starting on July 17, 2018. The new subsidiary has an Austrian Air Operator's Certificate (AOC) and will base four Airbus A321 aircraft in Vienna from where it will fly to 14 European destinations.

Principal risks and uncertainties

We have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 29 to 34 of the December 31, 2017 Annual Report and Accounts, remain relevant for the remainder of the year.

Operating and market environment

Fuel prices rose significantly in the six-month period, partially offset by a weaker US dollar against both the euro and the pound sterling. The euro weakened against the pound sterling during the period, although to a lesser extent. Exchange rates were net negative for the Group.

IAG's results are impacted by exchange rates used for the translation of British Airways' and Avios' financial results from sterling to the Group's reporting currency of euro. For the six months, the net impact of translation was €26 million adverse with a decrease in revenues of €217 million and a decrease in costs of €191 million.

From a transactional perspective, the Group's financial performance is impacted by fluctuations in exchange rates, primarily from the US dollar, euro and pound sterling. The Group generates a surplus in most currencies in which it does business, except for the US dollar, as capital expenditure, debt repayments and fuel purchases typically create a deficit. The Group hedges a portion of its transaction exposures. The net transaction impact on operating profit was positive by €18 million, decreasing revenues by €294 million and costs by €312 million.

The net impact of translation and transaction exchange for the Group was €8 million adverse.

Basis of preparation

The Group has adopted IFRS 15 'Revenue from contracts with customers' and IFRS 9 'Financial Instruments' from January 1, 2018. The prior year consolidated income statement has been restated. The main change arising on adoption of IFRS 15 is on the recognition and measurement of revenue associated with the Group's loyalty programmes. Revenue associated with performance obligations arising on the sale of loyalty points, including revenue allocated to brand and marketing services and revenue allocated to Avios points, has been determined based on the relative stand-alone selling price of each performance obligation. Revenue associated with brand and marketing services is recognised as the points are issued. Revenue allocated to the Avios points is deferred and recognised when the points are redeemed. The impact of assessing the stand-alone selling prices of the individual performance obligations has resulted in a greater portion of revenue being deferred on issuance, because the stand-alone selling price of the points was higher than the fair value applied under IFRIC 13 'Customer loyalty programmes'. In addition, as required on implementation of IFRS 15, the Group reassessed all incomplete contracts at the date of initial application for any remaining performance obligations. This resulted in an increase in the number of points deferred in respect of incomplete contracts and which are expected to be redeemed in the future. The adjustment to opening retained earnings at January 1, 2017 arising from these loyalty revenue recognition changes amounted to €403 million.

Under IFRS 15, the Group's previously reported revenues for the six month period to June 30, 2017 were reduced by €21 million and operating expenditure increased by €4 million, resulting in a reduction in operating profit of €25 million. Under IFRS 9, a €77 million charge to net non-operating costs was reclassified to Other comprehensive income reflecting primarily the unrealised movement in the time value of derivative options which is now recognised in Other comprehensive income. The impact of the restatements in the income statement increased the tax charge by €12 million. For further information see note 2 of the condensed consolidated interim financial statements.

The Group's performance for the six month period to June 30, 2018 includes LEVEL's operations, the comparator period includes LEVEL's operations since its inception on March 17, 2017. 

Capacity

In the first six months of 2018, IAG capacity, measured in available seat kilometres (ASKs) was higher by 5.0 per cent with increases across all regions except Asia Pacific.

Vueling continued its aim to reduce the seasonality of its network through growth in the first half of the year. However its plans were affected by a challenging operational environment due to French air traffic control strikes leading to significant level of cancellations. Iberia increased its capacity primarily through additional frequencies in its domestic market, to European cities and on its North American routes. Iberia also launched its new route to San Francisco. Aer Lingus growth reflects the full year impact of routes launched in 2017, and the impact of new routes to Philadelphia and Seattle. British Airways introduced flights to Nashville from London Heathrow, and also launched Canadian flights from Gatwick. LEVEL longhaul capacity growth reflected the full year impact of its second year in operation. Passenger load factor for the Group rose 1.5 points to 82.4 per cent.

Revenue

Passenger revenue increased 3.6 per cent versus last year. Passenger unit revenue (passenger revenue per ASK) increased 2.9 per cent at constant currency ('ccy') from both higher yields (passenger revenue/revenue passenger kilometre) and passenger load factor. For the six months to June 30, 2018 passenger revenue per ASK improved in all regions except for Asia Pacific which saw mixed performance. The Group's revenue performance was strong in North America, Europe and Latin America. While the domestic market performance rose, quarter two was down due to the operational disruption at Vueling. In the six months to June 30, 2018 the Group carried over 52 million passengers up 8.0 per cent versus last year.

Cargo revenue increased 3.5 per cent, 10.2 per cent at constant currency versus last year. The cargo performance was strong with an increase in cargo yield (cargo revenue / cargo tonne kilometres) and an increase in tonnes carried. The Asia Pacific region performed well and mix improved from Constant Climate Critical products.

Other revenue was down 3.7 per cent, excluding currency impact up 3.5 per cent. Other revenue rose from higher BA Holidays revenue and from rental revenue at New York JFK, partially offset by a decrease in Iberia's third party maintenance business.

Costs

Employee costs increased 0.1 per cent compared to last year. On a unit basis and at ccy, employee unit costs improved 2.4 per cent with salary awards primarily RPI linked, offset by efficiency and restructuring initiatives across the airlines. The replacement of British Airways NAPS and BARP plans with a flexible defined contribution scheme also led to a net reduction in pension costs. The average number of employees rose 0.4 per cent, while productivity increased 4.5 per cent with improvements at British Airways, Iberia, Vueling and Aer Lingus.

Fuel costs increased by 9.0 per cent with fuel unit costs up significantly at 12.8 per cent at ccy from average fuel prices net of hedging.

Handling, catering and other operating costs rose 1.1 per cent, excluding currency up 5.5 per cent. The year on year comparison is impacted by a €65 million charge in the base related to a power failure at British Airways in May 2017 causing operational disruption. Otherwise the Group's Handling, catering and other operating costs rose c.10 per cent excluding currency, half of which is from an increase in passengers carried. The remaining increase in Handling, catering and other operating costs reflects higher volumes from BA Holidays c.1pt, additional investment in the customer (lounges, catering, service delivery) c.1pt and EU 261 compensation costs related to air traffic control strikes c.3pts. In the six months to June 30, 2018, air traffic control strikes and regulations have significantly impacted our operations, in particular Vueling's.

Landing fees and en-route charges rose 0.6 per cent, excluding currency up 3.3 per cent. The rise is from an increase in flying hours up 4.5 per cent and in sectors flown up 4.9 per cent.

Engineering and other aircraft costs decreased 11.3 per cent, excluding currency down 2.9 per cent. The decrease is from the timing of third party maintenance activity at Iberia and engine compensation credits from a manufacturer.

Property, IT and other costs rose 1.8 per cent, excluding currency up 5.3 per cent. The increase primarily reflects higher IT costs and inflation on rent and rates.

Selling costs increased 8.1 per cent, excluding currency up 12.1 per cent due to higher volumes and distribution costs. The rise in distribution costs reflects the new business model introduced in November 2017 with a corresponding increase in passenger revenues and more direct access to customers.

Ownership costs decreased 0.9 per cent, excluding currency up 3.9 per cent. The increase reflects higher depreciation charges for the Boeing 747 fleet from lower expected residual values and incremental wet lease costs incurred to operate the acquired Monarch slots at London Gatwick airport. The Group had 565 aircraft in service at June 30, 2018 (2017: 549 aircraft in service).

At constant currency non-fuel costs per ASK decreased 1.5 per cent. Adjusted for non-airline businesses (such as MRO, handling, BA Holidays) and currency down 1.8 per cent. The improvement in cost performance was due to efficient growth and from management initiatives.

Non-operating costs, taxation and profit after tax

The Group's net non-operating costs for the six month period were €80 million compared to €115 million in 2017. The decrease is from unrealised gains on the revaluation of derivatives not qualifying for hedge accounting and a net financing credit related to pensions. The Group also recognised a loss on the sale and lease back of two aircraft and from a loss on disposal of inventory. The Group's finance income and costs for the six month period are in line with last year.

The tax charge for the period was €200 million before exceptional items with an effective tax rate for the Group of 19 per cent (2017: 20 per cent). The tax charge on exceptional items in the period was €47 million with an effective tax rate of 8 per cent, impacted by the recognition of withholding tax on the reduction of the defined benefit liability (2017: 19 per cent).

The profit after tax before exceptional items for the six months' period to June 30, 2018 was €835 million (2017 restated: €669 million), an increase of €166 million or 24.8 per cent versus last year.

Exceptional items

The changes noted in the strategic overview regarding the closure of the British Airways NAPS and BARP pension schemes resulted in a one-off reduction of the defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million. These items are presented net, as an exceptional item within the Income statement of €678 million.

In 2018, the Group also recognised an exceptional charge of €58 million (2017 restated: €77 million) related primarily to the continuation of British Airways' transformation initiatives.

Cash and leverage

The Group's cash position of €8,146 million was up €202 million over the same period last year while adjusted net debt decreased €826 million including a reduction in on-balance sheet debt. Adjusted net debt to EBITDAR was lower by 0.3 to 1.2 times.

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

Unaudited Condensed Consolidated Interim Financial Statements

January 1, 2018 - June 30, 2018

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

At June 30, 2018 Aer Lingus held €44 million of restricted cash (2017: €45 million) within interest-bearing deposits maturing after more than three months to be used for employee related obligations.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE ACCOUNTS

For the six months to June 30, 2018

1. CORPORATE INFORMATION AND BASIS OF PREPARATION

International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora (hereinafter 'British Airways' and 'Iberia' respectively) completed a merger transaction becoming the first two airlines of the Group. Vueling Airlines S.A. ('Vueling') was acquired on April 26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18, 2015.

IAG shares are traded on the London Stock Exchange's main market for listed securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'), through the Spanish Stock Exchanges Interconnection System (Mercado Continuo Español).

The condensed consolidated interim financial statements were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on August 2, 2018. The condensed consolidated interim financial statements herein are not the Company's statutory accounts and are unaudited. The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the interim financial statements.

The same basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2017 have been applied in the preparation of these condensed consolidated interim financial statements, except as adjusted for the implementation of IFRS 9 and IFRS 15 as described below. IAG's financial statements for the year to December 31, 2017 have been filed with the Registro Mercantil de Madrid, and are in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and with those of the Standing Interpretations issued by the IFRS Interpretations Committee of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.

2. ACCOUNTING POLICIES

The Group has adopted IFRS 15 'Revenue from contracts with customers' from January 1, 2018. The standard establishes a five-step model that applies to revenue arising from contracts with customers. Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for goods and services and at a point when the performance obligations associated with these goods and services have been satisfied.

The Group has identified the following changes to revenue recognition on adoption of the standard:

· Loyalty revenue - revenue associated with performance obligations arising on the sale of loyalty points, including revenue allocated to brand and marketing services and revenue allocated to Avios points, has been determined based on the relative stand-alone selling price of each performance obligation. Revenue associated with brand and marketing services is recognised as the points are issued. Revenue allocated to the Avios points is deferred and recognised when the points are redeemed. The impact of assessing the stand-alone selling prices of the individual performance obligations has resulted in a greater portion of revenue being deferred on issuance, because the stand-alone selling price of the points was higher than the fair value applied under IFRIC 13 'Customer loyalty programmes'.

As required on implementation of IFRS 15, the Group reassessed all incomplete contracts at the date of initial application for any remaining performance obligations. This resulted in an increase in the number of points deferred in respect of incomplete contracts and which are expected to be redeemed in the future.

The Group also changed the way that costs associated with the redemption of Avios points with third parties are presented. The revenue arising from these transactions is presented net of the related costs as IAG is considered to be an agent rather than principal.

· Passenger revenue - revenue associated with ancillary services that was previously recognised when paid, such as administration fees, is deferred to align with the recognition of revenue associated with the related travel.

· Cargo revenue - interline cargo revenue is presented gross rather than net of related costs as IAG is considered to be principal rather than agent in these transactions.

· Other revenue - revenue associated with maintenance activities and holiday revenue with performance obligations that are fulfilled over time, is recognised over the performance obligation period.

The Group has applied the standard on a fully retrospective basis and restated prior year comparatives on adoption of IFRS 15. The adjustment to opening retained earnings at January 1, 2017 arising from the changes to loyalty revenue recognition amounted to €403 million. Deferred revenue on ticket sales increased by €497 million and the tax liability decreased by €94 million. Other changes to revenue recognition resulted in a charge to retained earnings at January 1, 2017 of €27 million.

2. ACCOUNTING POLICIES continued

For the year ended December 31, 2017, adjustments to reflect IFRS 15 resulted in a reduction to revenue of €92 million and a reduction to operating costs of €27 million, resulting in a reduction in operating profit of €65 million.

The Group has adopted IFRS 9 'Financial Instruments' from January 1, 2018. The standard amends the classification and measurement models for financial assets and adds new requirements to address the impairment of financial assets. It also introduces a new hedge accounting model to more closely align hedge accounting with risk management strategy and objectives.

The Group will continue to recognise most financial assets at amortised cost. Equity investments, previously classified as available-for-sale, are measured at fair value through Other comprehensive income, with no recycling of gains and losses. In addition, the Group has adopted a new impairment model for trade receivables and other financial assets, with no material adjustment to existing provisions.

The Group continues to undertake hedging activity in line with its financial risk management objectives and policies. Movements in the time value of options are now classified as cost of hedging and recognised in Other comprehensive income, with prior year comparatives restated. At January 1, 2017 there was a reclassification of €38 million of post-tax gains from retained earnings to unrealised gains and losses in Other reserves to reflect this reclassification. For the year ended December 31, 2017, adjustments to reflect IFRS 9 resulted in a post-tax charge of €42 million previously recognised in the Income statement being recognised in Other comprehensive income in the same period.

Impact on financial statements

The following tables summarise the impact of adopting IFRS 15 and IFRS 9 on the Consolidated income statement for the six months to June 30, 2017 and the Consolidated balance sheet as at December 31, 2017.

Consolidated income statement (extract for the six months to June 30, 2017)

2. ACCOUNTING POLICIES continued

Consolidated balance sheet (extract as at December 31, 2017)

The Group has not adopted any other standards, amendments or interpretations in the six months to June 30, 2018 that have had a significant change to its financial performance or position.

IFRS 16 'Leases' will be adopted by the Group from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. The Group has a number of operating leases for assets including aircraft, property and other equipment. Details of the Group's operating lease commitments are disclosed in note 23 of IAG's 2017 Annual Report and Accounts.

The Group is currently assessing the impact of the new standard and expects its implementation to have a significant impact on the financial statements from the date of adoption. The main changes will be as follows:

1. The amounts recognised as assets and liabilities on adoption of IFRS 16 will be subject to a number of judgements, estimates and assumptions. This includes:

a. Judgements when reviewing current agreements (such as agreements for terminal capacity) to determine whether they contain leases as defined under the new standard.

b. Assumptions used to calculate the discount rate to apply to lease obligations, which is likely to be based on the incremental borrowing rate for the estimated lease term.

c. Estimation of the lease term, including options to extend the lease where the Group is reasonably certain to extend.

2. Interest-bearing borrowings and non-current assets will increase on implementation of the standard as obligations to make future payments under leases currently classified as operating leases will be recognised on the Balance sheet, along with the related 'right-of-use' asset. On adoption, it is expected that the Group will adopt the modified retrospective transition approach, with lease obligations, which are predominantly US dollar denominated, recognised at the exchange rate ruling on the date of adoption and the appropriate incremental borrowing rate at that date. The related 'right-of-use' asset will be recognised at the exchange rate ruling at the commencement of the lease.

3. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are replaced with depreciation and lease interest expense.

4. The Group's Alternative Performance Measures will also be impacted. These comprise Operating profit and lease adjusted operating margin; Adjusted earnings per share; EBITDAR; Return on Invested Capital; Adjusted net debt to EBITDAR; and Equity free cash flow. The definitions of these metrics will be reviewed on adoption of IFRS 16 to ensure that they continue to measure the outcome of the Group's strategy and monitor performance against long-term planning targets.

For future reporting periods after adoption, foreign exchange movements on lease obligations, which are predominantly denominated in US dollars, will be remeasured at each balance sheet date, however the right-of-use asset will be recognised at the historic exchange rate. This will create volatility in the Income statement.

3. exceptional items

(1) Restructuring costs

British Airways has embarked on a series of transformation proposals to develop a more efficient and cost effective structure. The overall costs of the programme primarily comprise employee severance costs. Costs incurred in the six months to June 30, 2018 in respect of this programme amount to €58 million (2017: €77 million), with a related tax credit of €11 million (2017: €15 million).

(2) Employee benefit obligations

British Airways closed its New Airways Pension Scheme (NAPS) to future accrual and British Airways Retirement Plan (BARP) to future contributions from March 31, 2018. The schemes have been replaced by a flexible defined contribution scheme, the British Airways Pension Plan (BAPP). The changes resulted in a one-off reduction of the NAPS IAS 19 defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million through employee costs. These items are presented net, together with BARP closure costs, as an exceptional item within the Income Statement of €678 million, with a related tax charge of €58 million.

4. Seasonality

The Group's business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months.

5. SEGMENT INFORMATION

a Business segments

The Group has a number of entities which are managed as individual operating companies including airline and platform functions. Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results.

The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.

The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made based on the passenger business, or are not reviewed by the IAG MC and are included within Other Group companies.

5. SEGMENT INFORMATION continued

a Business segments continued

5. SEGMENT INFORMATION continued

b Geographical analysis

Revenue by area of original sale

Assets by area

6. FINANCE COSTS AND INCOME

7. TAX

The tax charge for the six months to June 30, 2018 is €247 million (2017 restated: €151 million), and the effective tax rate is 14.9 per cent (2017 restated: 19.9 per cent).

8. EARNINGS PER SHARE AND SHARE CAPITAL