Shares in Iberia have risen sharply despite the Spanish carrier revealing that profits have nosedived 90 percent last year to €32m (£29.6m).

Ahead of a meeting with BA’s Willie Walsh, chairman and chief executive Fernando Conte also said the airline plans to cut capacity by 1.7 percent this year.It also racked up a €79m operating loss in 2008. Revenues were expected to fall 1.3 percent to €5.45m, while costs - hit by a 46 percent rise in the fuel bill to €1.67bn - were forecast to rise by 5.5pc to €5.5bn.

However the markets reacted warmly to the airline’s plans to improve earnings by €450m in the three years to 2011 through such a cost-cutting programme and improving its fleet deployment.

On current market valuations Iberia is valued at £1.69bn - more than BA’s market value last night of £1.61bn. The relative valuations could be the stumbling block for Mr Walsh to negotiate the 60 percent share in the combined carrier he wants.

Ahead of a meeting with Willie Walsh, Mr Conte said: “We have identified and quantified the synergies and are discussing at this moment the terms of the agreement regarding corporate governance and relative valuations. It is clear that we will obtain substantial revenue and cost synergies.”
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