Iberia said on Thursday it would drop its bid for Spanair, shortly after the chairman said Iberia was rethinking its stance on the offer because of hard times in the sector.
Iberia said in a statement released to the Spanish stock exchange after the market closed it would withdraw its bid because there was no agreement on conditions linked to the deal.
Airline shares around the world have been hit in recent months by a jump in oil prices and a slowdown in economic growth, making Iberia's offer more expensive than when the Spanish carrier's board approved a bid in February.
"The truth is the clock is ticking. The environment is changing. We have to consider what is the future of our offer within this new market environment," Chairman Fernando Conte told a news conference before the annual shareholders meeting.
Shortly after the comments, Scandinavian carrier SAS said it might abandon its plan to sell Spanair if it was unable to carry out a deal before the end of the second quarter.
"If SAS does not reach a satisfactory solution regarding the divestment, SAS will abandon the current sales process and continue as a shareholder committed to ensure a profitable Spanair," a statement from the Stockholm-based airline said.
Other possible bidders include charter airline Gadair as well as a group of Catalan businessmen in partnership with an industrial investor, Spanish media have reported.
Conte painted a grim scene for airlines that have had to contend with oil prices more than doubling over the last 12 months and an economic slowdown that has prevented them passing on much of the rise to passengers.
"The price per barrel is over USD$130 and this creates a dramatic situation for the sector," he said, but declined to say by how much the airline might increase fuel surcharges. "It's going to depend on the response of the market, on the strength of demand. It is a question that we still don't have an answer to."
Finance Director Enrique Dupuy said Iberia was looking to hedge its 2009-2011 fuel needs at between USD$110 and USD$120 a barrel. The airline currently has 48 percent of its 2008 fuel needs hedged at around USD$83 per barrel, he said.
Merger discussions between shareholders of Spanish low cost airlines Vueling and Clickair -- 20 percent owned by Iberia -- were "very advanced", Conte said.
"Talks between the shareholders in the two companies are going well," he said, though the parties had to draft a memorandum of understanding to jump various regulatory hurdles.
"I believe we are very close at this point."
In contrast, Conte said Iberia had "absolutely no interest" in the privatization of Italy's Alitalia.
