British Airways said Tuesday it would merge with Iberia, Spain's national airline, as slower economies and higher fuel costs wipe out earnings.
The airlines are in talks about an all-stock transaction that would create a new company with two fleets and a dual listing in London and Madrid, the companies said.
The deal would be the largest in Europe since Air France acquired Dutch airline KLM for $826.9 million in 2003. At least 24 carriers have stopped flying or filed for bankruptcy protection this year, and this month British Airways, which owns 13.2% of Iberia, said it would cut capacity and freeze hiring.
"There are some real revenue synergies here," said Gert Zonneveld, a London-based analyst at Panmure Gordon.
Record oil prices have made fuel the industry's single biggest expense, threatening earnings and prompting many carriers, including British Airways, to raise fuel surcharges.
On Tuesday, Delta Air Lines doubled the fee for checking a second bag on domestic flights to $50, the most of any of the six biggest U.S. carriers, to defray record jet fuel costs.
"The aviation landscape is changing and airline consolidation is long overdue," British Airways Chief Executive Willie Walsh said in a statement.
Iberia's network complements that of British Airways, with the Spanish carrier offering routes to Latin America that its larger rival doesn't. The new company would also have an advantage in financing new plane purchases, Walsh said.
British Airways to merge with Iberia
The two national carriers plan to join forces to combat soaring fuel prices.
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