Half Yearly Report

SIX MONTHS RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (August 2, 2013) presented Group consolidated results for the six months to June 30, 2013.

IAG period highlights on results:

·; Second quarter operating profit €245 million (2012: loss €4 million) before exceptional items, based on strong passenger unit revenues and non-fuel unit cost improvements

·; Before Vueling at constant currency, second quarter passenger unit revenue up 4.8 per cent and non-fuel unit costs down 0.2 per cent

·; Operating loss for the half year €33 million (2012: loss €253 million) before exceptional items

·; Revenue for the half year up 2.1 per cent to €8,707 million including 1.7 per cent adverse currency impact

·; Passenger unit revenue for the half year up 2.8 per cent (4.6 per cent at constant currency), on capacity increase of 1.2 per cent

·; Fuel costs for the half year down 3.7 per cent to €2,864 million (2012: €2,973 million). Fuel unit costs down 4.7 per cent at constant currency

·; Non-fuel costs before exceptional items for the half year up 1.1 per cent at €5,876 million. Non-fuel unit costs down 0.2 per cent, up 0.9 per cent at constant currency

·; Cash €3,627 million at June 30, 2013, up €718 million including €549 million of Vueling cash

·; Adjusted gearing up 3 points to 54 per cent including Vueling 

Performance summary:

(1) Restated for amendment to IAS 19 'Employee Benefits' accounting standard.

(2) Adjusted net debt is net debt plus capitalised operating aircraft lease costs.

(3) Adjusted gearing is net debt plus capitalised operating aircraft lease costs, divided by net debt plus capitalised operating aircraft lease costs and adjusted equity.

Willie Walsh, IAG chief executive, said:

"These are positive results for the quarter with an operating profit of €245 million based on total revenue up 3.4 per cent and costs down 2 per cent. Fuel costs were down 3.9 per cent."

"Several factors have contributed to this improvement. Firstly, the benefits of Iberia's restructuring are beginning to show. Having reduced capacity at Iberia in the first quarter, costs began to be taken out in the second quarter following the implementation of the mediator's proposal. Nearly 1,700 employees have left the airline so far with remaining staff taking salary reductions of 18 per cent for flight and cabin crew and 11 per cent for all other employees. This is the first step in the restructuring but it is already bearing fruit with Iberia's losses down from €93 million last year to €35 million reversing the negative trend of the last 11 quarters."

"British Airways' performance has improved with operating profit up from €94 million in 2012 to €247 million. The London market and transatlantic traffic remains strong, legacy costs from the bmi integration have ended and the airline remains focused on cost control."

"Vueling joined IAG on April 26, 2013 and in the rest of the quarter achieved an operating profit of €27 million. The airline has continued to manage its capacity growth effectively by expanding its business while increasing profits. It's also benefitted from its Barcelona base where it has developed a strong competitive position".

Trading outlook

In the light of the requirement for the Group to seek shareholder approval for fleet orders and the consequent requirement to report on any outstanding profit forecast as part of that process, IAG is no longer giving guidance at the operating profit level for 2013. However, it provides the following statement on the outlook:

Current trading is in line with recent trends. For 2013, we expect to grow Group capacity by 5.2 per cent including Vueling (reduction of 2.4 per cent excluding Vueling). We should see a reduction in the Group's non-fuel unit cost (flat excluding Vueling).

Forward-looking statements:

Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and International Consolidated Airlines Group S.A. (the 'Group') plans and objectives for future operations, including, without limitation, discussions of the Group's Business Plan, expected future revenues, financing plans and expected expenditures and divestments. All forward-looking statements in this report are based upon information known to the Group on the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Group's forward-looking statements 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 2012; this document is available on www.iagshares.com.

IAG Investor Relations

2 World Business Centre Heathrow

Newall Road, London Heathrow Airport

HOUNSLOW TW6 2SF

Tel: +44 (0)208 564 2900

[email protected]

Financial review:

FULL SIX MONTHS PERFORMANCE OF IAG TO PRIOR YEAR SIX MONTHS

Operating and market environment

The half year has seen some stability in fuel prices and foreign exchange rates. Our continental European demand has been higher than we had expected at the beginning of the year. Our North America market continued to perform well. Africa, South America and Asia, although having slightly lower economic outlooks than expected are still showing growth opportunities.

Strategic developments

In April, IAG announced that it has placed firm orders for 18 Airbus A350-1000 aircraft and plans to convert 18 Boeing 787 options into firm orders for British Airways, subject to shareholder approval. These aircraft will be used to replace 30 Boeing 747-400 aircraft between 2017 and 2023. For Iberia, IAG reached agreement with Airbus as well as Boeing to secure commercial terms and delivery slots that could lead to firm orders for A350s and/or Boeing 787s. Firm orders will only be made when the airline is in a position to grow profitably, having restructured and reduced its cost base.

On April 23, the majority of Vueling Airlines, S.A.'s (Vueling) shareholders accepted IAG's cash tender offer for the acquisition of the remaining shares of the airline. IAG already indirectly owned 45.85 per cent of Vueling and 82.48 per cent of the remaining shareholders have accepted IAG's offer of €9.25 per share. Therefore, the IAG Group owns 90.51 per cent of Vueling from the acquisition completion date of April 26, 2013. The cost of purchasing the Vueling shares was €124 million. On June 27, Vueling agreed at a general shareholders meeting to delist the remaining 9.49 per cent of shares from the Barcelona, Bilbao, Madrid and Valencia Stock Exchanges.

On May 14, IAG successfully raised €390 million in a senior unsecured convertible bond. The bonds were issued to fund its acquisition of Vueling, enhance liquidity and lower its cost of capital. They accrue a fixed rate of interest of 1.75 per cent per annum, payable semi-annually in arrears. The conversion price of €4.25 represents a premium of approximately 35 per cent over the volume weighted average price of ordinary IAG shares on the London Stock Exchange from launch to pricing.

On June 26, IAG announced the successful launch by British Airways of a $927 million publicly-traded bond, using aircraft as collateral. These bonds are known as EETCs (Enhanced Equipment Trust Certificates) and are a form of aircraft financing commonly used by US airlines. The transaction included Class A and Class B Certificates, with an annual coupon of 4.625 per cent and 5.625 per cent respectively. The underlying collateral pool is made up of six new B787-8 aircraft, two new B777-300 ER aircraft and six new A320-200 aircraft, due for delivery within the next 12 months. This is the first time that British Airways has used EETCs and the first time this form of financing has been used in the UK.

Exchange rates

For the six months the translation of British Airways from sterling functional currency to the Group's euro reporting currency has resulted in a €160 million year over year decrease in revenue and a €147 million favourable impact on operating costs, reflecting 2.3 per cent weakening of the pound sterling against euro.

The transactional exchange rate impacts across the Group for the six months saw a positive impact on revenue of €13 million and an adverse impact on costs of €86 million.

Therefore the net adverse impact on the half year loss was €86 million, including €147 million adverse impact on revenues and €61 million favourable on costs.

Vueling

The six month performance to June 30, 2013 includes Vueling from April 26, 2013. Vueling represented 4.1 per cent of the first half capacity, 3.2 per cent of the total revenue and earned an operating profit of €27 million.

Traffic

Overall capacity grew by 1.2 per cent in the first six months of the year and traffic grew by 2.0 per cent, increasing seat factors 0.6 points to 79.4 per cent. Excluding Vueling, capacity was down 2.9 per cent and traffic was down 2.1 per cent, leading to seat factor improvement of 0.7 points.

Passenger revenue

Passenger revenue increased 4.0 per cent compared to the prior year six months or 5.8 per cent at constant currency. Unit passenger revenue (per ASK) was up 2.8 per cent and passenger yield (per RPK) was up 2.0 per cent. At constant currency passenger unit revenue was up 4.6 per cent and passenger yield up 3.8 per cent.

The focus during the first six months at British Airways continued to be sustainable yield and unit revenue improvements with restrained capacity growth to match market demands. At Iberia the focus for the first six months has been the implementation of the Transformation Plan to improve profitability, reducing capacity by 13.0 per cent, and suspending loss making routes and frequencies.

Longhaul

North America capacity decreased by 0.6 per cent and traffic improved by 1.4 per cent, resulting in a seat factor increase of 1.6 points to 83.2 per cent.

Latin America and Caribbean capacity declined by 8.9 per cent and traffic fell by 10.6 per cent leading to a seat factor decrease of 1.6 points to 82.4 per cent.

Africa, Middle East and South Asia saw capacity decreases of 1.1 per cent, traffic decreased by 0.2 per cent leading to a seat factor increase of 0.6 points to 76.0 per cent.

Asia Pacific capacity increased 1.9 per cent, whilst traffic grew 4.1 per cent, which resulted in a seat factor improvement of 1.7 points to 79.6 per cent.

Shorthaul

The European market has had a strong performance throughout the first half of the year and has benefitted from the addition of Vueling.

Europe saw capacity increase by 13.7 per cent and traffic improved 18.2 per cent leading to a seat factor increase of 2.9 points to 75.3 per cent. Excluding Vueling, seat factor increases were similar but on a 2.6 per cent capacity decrease.

Domestic capacity increased 22.7 per cent and traffic was up 19.2 per cent leading to a seat factor decrease of 2.1 points to 71.9 per cent. Excluding Vueling, domestic capacity was down 5.2 per cent, traffic decreased 12.2 per cent leading to a 5.5 points decrease in seat factor.

Premium

Premium traffic (RPKs) continued to increase in the half year, with a positive mix impact on unit revenues and yields.

Cargo and other revenue

Cargo revenues and volumes were both down but with a small yield improvement of 0.1 per cent over the same period last year.

From April 26, Iberia's handling and maintenance revenues related to Vueling are eliminated from the Group results. The impact for the first half of the year was approximately €25 million reduction in both revenues and costs. Other revenue has also been impacted by the industrial action in Spain due to both losses of productivity in the first quarter and of on-going business in the second quarter. Cargo handling volumes and yields were also down. Other revenues have seen improvements during the period in areas such as BA Holidays.

Costs

Total costs excluding exceptional items were down €45 million or 0.5 per cent to €8,740 million benefitting from a lower translation exchange rate reducing costs €147 million offset by transactional currency impacts of €86 million. At constant currency, total costs were up €16 million or 0.2 per cent, on a capacity increase of 1.2 per cent leading to an improvement in total unit costs of 1.0 per cent.

Non-fuel unit costs were down 0.2 per cent. Non-fuel unit costs rose due to timing differences in quarter one from capacity cuts at Iberia as part of the Transformation Plan in advance of headcount reductions and at British Airways in advance of the new aircraft arriving this year. Non-fuel unit costs are adversely impacted as we include bmi in quarter one for the first time in 2013; quarter one traditionally generates higher non-fuel costs per ASK than the rest of the year due to seasonality. Quarter two saw a reversal of these impacts and these were partially offset by the inclusion of Vueling from April 26, 2013, as it excludes the quarter one period and has an overall lower cost base per ASK.

Fuel costs were down €109 million or 3.7 per cent to €2,864 million and fuel unit costs were down 4.7 per cent, as a result of lower fuel price. At constant currency fuel unit costs were also down 4.7 per cent as adverse transaction exchange rates from the pound sterling to US dollar movements were offset by translation exchange benefits from pound sterling to euro movements.

Employee costs before exceptional items were flat versus last year but up 1.4 per cent at constant currency, reflecting Vueling costs, wage awards and higher pension service costs (due to accounting), offset by the impact of the Iberia Transformation Plan. Employee unit costs at constant currency were flat.

Handling, catering and other operating costs were up 8.6 per cent to €924 million or 10.5 per cent at constant currency. This increase is driven primarily by the increase in the number of passengers carried during the period of 13.1 per cent, cycling over quarter one where bmi was not included in the base and the inclusion of Vueling in the second quarter. Other operating costs have also increased as a result of additional BA Holidays activity, increasing both revenues and costs.

Landing fees and en-route charges rose by 4.3 per cent to €655 million, or up 5.9 per cent at constant currency. Landing fees and en-route charges have risen due to an increase in the volume of landings and increases in airport charges which have exceeded inflation.

Engineering and other aircraft costs before exceptional items were down 1.4 per cent to €626 million, or down 1.6 per cent at constant currency. The decrease is partially due to reduced third party activity in Spain from industrial action impacting productivity in the first quarter and a loss of on-going business in the second quarter. These decreases have been partially offset by other volume and price related increases.

Property, IT and other costs before exceptional items were down €13 million or 2.8 per cent to €457 million. Property, IT and other costs have decreased due to elimination of bmi head office costs.

Selling costs decreased by 5.9 per cent to €398 million, or down 3.5 per cent at constant currency. The decrease in selling costs is due to the decrease in passenger numbers at Iberia and the non-repetition of specific 2012 initiatives at British Airways, such as the investment in Masterbrand and Olympic advertising. These decreases have been partially offset by passenger volume increases at British Airways and Vueling.

Depreciation, amortisation and impairment costs were down 2.7 per cent to €498 million, which was mostly currency related.

Aircraft operating lease costs before exceptional items rose by 2.9 per cent to €215 million, primarily reflecting an increase of 71 operating leased aircraft for Vueling and a decrease of nine operating leased aircraft at Iberia.

Exceptional items

Employee restructuring costs associated with the Transformation Plan of Iberia were recorded in 2012, calculated based on Management's expectation and taking into consideration the labour laws in Spain. Following acceptance of the mediator proposal in March 2013, additional employee restructuring provisions of €265 million were recognised. Exceptional restructuring costs of €47 million associated with the return of leased aircraft and standing down owned aircraft have also been recorded.

The acquisition of Vueling has resulted in a number of exceptional items during the period; the exclusion of fuel cash flow hedges in place at the time of acquisition resulting in a €3 million credit, acquisition costs related to the transaction of €5 million and a step acquisition loss related to the original investment held of €17 million. In addition there was an exceptional credit of €2 million related to aircraft lease cash flow hedges acquired upon the Iberia acquisition.

Prior year exceptional items mainly reflect the benefit realised in the first quarter related to the settlement of competition fines in the UK leading to a release of provision of €35 million and costs associated with the restructuring of the bmi acquired mainline business which amounted to €40 million in the second quarter, including €8 million of transaction and integration costs for the bmi acquisition. In addition, there was an exceptional credit of €4 million in the prior six months related to aircraft lease cash flow hedges acquired upon the Iberia acquisition.

Operating loss

IAG operating loss before exceptional items for the six months was €33 million, compared to a loss of €253 million in the first half of 2012.

Non-operating items

Non-operating costs have increased from €104 million to €144 million due to increases in net financing charges of €32 million and €10 million related to IAG's share of Vueling's pre-acquisition losses from equity accounting.

Taxation

During the period deferred tax assets related to Iberia's current period losses have not been recognised. The recognition of these deferred tax assets will be reviewed in the second half of the year as part of the annual Business planning process. Excluding this impact, the tax credit for the quarter of €3 million reflects an effective rate for the Group of 35 per cent.

Discontinued operations

Prior year discontinued operations represents the post-tax loss for the period of bmi regional and bmibaby. bmi regional was sold during the prior period and bmibaby ceased operations in quarter three 2012.

Cash

Cash at June 30, 2013 was €3,627 million, up €718 million from December 31, 2012. The increase in cash reflects the proceeds from the €390 million convertible bond, net of the Vueling consideration and acquisition costs; and the cash balances held by Vueling. These increases have been partially offset by cash used by both British Airways and Iberia since year end in line with the seasonality of business.

The cash balance at June 30, 2013 comprised €2,116 million held by British Airways, €690 million held by Iberia, €549 million held by Vueling and €272 million held by IAG holding companies.

Business review

Our mission is to be the leading international airline group. This means we will:

·; win the customer through service and value across our global network;

·; deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;

·; attract and develop the best people in the industry;

·; provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;

·; retain the distinct cultures and brands of individual airlines.

By accomplishing our mission, IAG will help to shape the future of the industry, set new standards of excellence and provide sustainability, security and growth.

Principal risks and uncertainties

During the period 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 79 to 81 of the December 31, 2012 Annual Report and Accounts, remain relevant for the remaining six months of the year.

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

Unaudited Condensed Consolidated Interim Financial Statements

January 1, 2013 - June 30, 2013