Iberia has vowed to accelerate its cost cutting programme after sliding further into the red over the second quarter and warning that it looks set to register its first annual loss in a decade.

The airline, which has been in merger talks with British Airways for over a year, said it would reduce capacity 6 percent for the year, compared with the 4.3 percent previously announced.

It also announced that it was postponing the delivery of one Airbus 340-600, as well as pulling a further three short- and medium-range aircraft from its fleet. It also said it would cut further jobs and freeze wages.

The news came as Spain’s largest carrier reported a net loss of €72.8 million, compared with a €21.1 million net profit a year earlier. Revenue fell 22% to €1.07 billion from €1.37 billion.

The weakness of the Spanish economy resulted in a 0.7% fall in load factor to 78.9% in the first half.

Iberia blamed the mounting losses on “the fall in revenues generally, and the collapse in business travel in particular”. The collapse in premium class resulted in average revenue per available seat kilometre falling 16.5% year-on-year in the second quarter, while average revenue per ticket was down 15.5%.

Iberia has spent €580.1 million so far this year on fuel, down from €732.1 million in the first six months of 2008. The company said the drop was due to a fall in oil prices, lower consumption of fuel as the company reduced capacity and hedges on the dollar-to-euro exchange rate.