British Airways merger takes to the skies and aims for E400m in cuts

The new company, Europe's second biggest airline group by value behind Lufthansa, is seen as a major player in further industry consolidation and well-placed to benefit from global economic recovery.

IAG, which will continue to operate the British Airways and Iberia brands, aims to shave e400m off annual costs within five years.

Analysts noted potential for adding new routes.

While prime long-haul slots are like gold dust at Heathrow, Madrid airport suffers fewer capacity constraints.

IAG, which has 419 aircraft flying to 205 destinations, is seen as a key player in industry consolidation in the next few years and has drawn up a list of 12 airlines it is interested in buying.

Asia is likely to be the focus for any deal, complementing its strength on routes to North and South America.

Indian carrier Kingfisher Airlines is also seen as a prime target along with Australian group Qantas while a number of Chinese carriers may also be open to investment.

IAG chief executive Willie Walsh said: "British Airways and Iberia are the first two airlines in IAG but they won't be the last. Our goal is for more airlines but, importantly, the right airlines to join the group."

The carrier still has a list of longstanding issues to deal with, including repeated industrial action by BA cabin crew and a big pension deficit.

BA staff voted on Friday to strike again in a long-running dispute over proposed job and pay cuts on long-haul flights.