British Airways Plc, Europe's third-biggest carrier, started talks to merge with Spain's Iberia Lineas Aereas de Espana SA to lower expenses as slower economies and higher fuel costs wipe out earnings.

The airlines want to conduct an "all-share merger", and planes would still fly using the two names, London-based British Airways said yesterday. Iberia rose 4.3 percent in Madrid before trading was halted, giving the carrier a market value of 1.63 billion euros. British Airways, at more than double Iberia's value, climbed 7.5 percent in London.

British Airways said two weeks ago it will cut passenger capacity and stop hiring as it struggles to make a profit.