BA target Iberia has 6-month loss

Domestic passengers opted to swap to the railways in the first half of the year

Spanish flag carrier Iberia has blamed soaring fuel costs and weak demand for a sharp drop in earnings.

The airline sank 32.2m euros (£25.5m; $50.2m) into the red in the first half of the year, against operating profits of 69m euros one year ago.

While fuel costs soared 38% to 732m euros, the airline said that a new Madrid-Barcelona high speed rail link hit domestic passenger numbers.

The news comes as the airline is in merger talks with British Airways (BA).

According to BA, such a move would help both airlines cope with the current economic environment.

Tough conditions

On Monday a report from the International Air Travel Association (IATA) revealed the number of people travelling on international flights grew at the slowest rate in five years in June, and warned conditions would get "a lot worse" amid plunging confidence and high oil prices.

Rising fuel prices contributed to a 4.1% rise in operating costs at Iberia, offsetting a slight increase in revenues.

Meanwhile, domestic passenger numbers fell as a result of surplus capacity in the Spanish market and as more domestic travellers opted to take a new high speed rail link between Barcelona and Madrid which opened in February.

In response, the airline cut back on internal flights and plans further cuts to capacity later in the year.