Iberia is reporting a seven percent drop in its earnings for 2005. They were below what the finance markets were expecting as the Spanish flag battles with budget carriers. The airline is also be pressured by soaring fuel costs and accounting adjustments.

During the fourth quarter of 2005, Iberia showed a loss of 6.1 million euros, compared to a net profit of 49.9 million euros a year earlier. Iberia said fuel costs jumped close to 37 percent during the same period.

Although Iberia said net profits had risen 98 percent to 396 million euros, including 663 million euros of profit from selling its stake in Amadeus and Savia, this money was spent on extraordinary items.

Iberia is battling budget carriers in Europe where it generates two-thirds of its passenger revenues.

Analysts told Reuters that its routes in Latin America are its best asset, although these are under threat from a growing number of flights and routes from Air France-KLM.

The Madrid airport’s new Terminal 4 building, which opened earlier this month, could become a double-edged sword for Iberia, analysts said.

In that the space will allow Iberia to double its capacity, but will also allow the space to open up for more rivals.
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