BA believes the tie-up will lower prices

BA said that the tie-up between the two carriers could lead to lower air fares for customers.

It added that the move would allow the airlines to cooperate extensively in areas such as capacity, sales and joint pricing.

The pair were granted exemption from competition legislation for six years, by the European Commission.

But the airlines will have to ensure competition is maintained on four routes between the UK and Spain, including Gatwick to Madrid and Gatwick to Bilbao, the Commission added.

'Customer benefits'

BA chief executive Rod Eddington called the tie-up "a sensible step forward" in the airlines' efforts to progress with consolidation in Europe.

He added: "The alliance will give customers access to more destinations and more convenient schedules.

"It will also bring significant cost benefits which will be passed on to customers in lower fares."

Competition commissioner Mario Monti said the deal would be "to the advantage of both business travellers and holiday passengers".

Iberia and BA began working together in 1999 on a code sharing agreement which allowed them to sell seats on each others services.

In 2002, they applied to the EU for an anti-trust exemption so they could start to share profits, agree prices and combine sales forces on a route-by-route basis.