Chairman Fernando Conte says Iberia is still in talks over tie-ups

Pre-tax pre-exceptional profits fell to 699.7 million euros ($829m; �472m), down from 749 million euros last year.

The flag carrier's fortunes have also been hit by record fuel prices.

However, net profits rose 98%, thanks to a capital gain from the sale of a 600 million euro stake in international travel reservation agency Amadeus.

Analysts said Iberia's results were disappointing. As well as fuel costs and competition factors, they cited worse-than-expected cost control.

Tie-up hopes

Iberia is battling low-cost carriers in Europe, where it makes two-thirds of its passenger revenues.

And while its routes to Latin America are its chief asset, these too are under threat from an increasing number of flights to that region from Air France-KLM.

The group said it was still considering possible tie-ups to alleviate the threat from low-cost rivals.

Chairman Fernando Conte said the airline was in touch with "various parties" regarding a joint deal.