Rivals create Iberia turbulence

Iberia is attracting fewer passengers for its domestic and European flights.

Soaring fuel prices and stiff competition saw Spanish airline Iberia make a loss in the first three months of 2008.

Its net loss of 441,000 euros (£350,000; $680,000) compared with a 12.9m euro net profit a year earlier.

Last November, British Airways pulled out of plans to increase its 10% stake in Iberia, signalling it no longer wished to take over the firm.

Iberia shares have fallen about 40% since the deal failed to materialise.

Consolidation

As part of its growth plans, Iberia is increasing the number of flights to Latin America, some of its most lucrative routes.

In the domestic and European market, Iberia has cut back the number of flights it operates.

However, despite this, and because of fierce competition from budget airlines and a new high-speed train link between Madrid and Barcelona, Iberia has seen the percentage of empty seats on those flights increase.

The tought competition means it will be difficulty for Iberia to raise ticket prices sufficiently to offset higher fuel costs, analysts said.

The price of jet fuel is directly linked to the price of crude oil, which has been on a record breaking run in recent weeks.

A barrel of US crude cost $66 a barrel at the end of the March 2007, but a year later had risen to beyond $100, and last week hit a high of almost $127.

Consolidation in the airline industry is expected to continue as firms look to cut costs, and the "open skies" agreement between the US and Europe will allow more budget airlines to fly across the Atlantic.