The traditional summer travel boom failed to materialise for British Airways last month as its aircraft flew nearly one quarter empty.

BA carried 94,000 fewer passengers than in July last year as higher fares and the worsening economic environment led to weaker demand. The airline's load factor, an indication of how full each flight is, fell 5.4 percentage points to 75.8 per cent.

Summer traditionally is the season when aircraft are fullest as much of Europe goes on holiday, but BA has not experienced the sort of increase in business that it would expect. A load factor of 75 per cent would be more typical for BA during late autumn or early spring.

Publication of BA's traffic figures came as Iberia, the Spanish flag carrier, said that it would buy more than £200 million of shares in the British airline. Iberia bought 2.99 per cent of BA's stock last week just before merger talks between the carriers were announced. Iberia has access to a further 6.99 per cent of BA stock through derivative instruments.

Fernando Conte, Iberia's chairman and chief executive, said yesterday that he planned to raise the Spanish holding in BA by up to the same amount held through derivatives.

Increasing the stake to just under 10 per cent would cost Iberia an additional £217 million at present prices. BA owns 13.15 per cent of Iberia and so the Spanish airline's purchase of extra shares will help to balance assets between the two carriers.

This could cut the premium that BA, as the bigger partner, would pay in the event of a merger. Iberia's decision to buy more stock helped to offset the poor traffic figures and BA's shares closed up 12p to 267p.

Mr Conte said: “Iberia intends over the coming months to acquire additional British Airways shares and to close the equivalent part of the derivatives long position.”

His comments came on another bad day for the European aviation sector as Iberia and Air France-KLM, two of the Continent's largest carriers, reported a massive collapse in profits. Iberia said that its operating loss in the first six months of this year was E32 million (£25.3 million), a 146 per cent fall on the same period last year. Air France-KLM, Europe's third-largest airline by passenger numbers, said that its first-quarter pre-tax profits had fallen 58 per cent to E251 million.

Both airlines blamed the falls on rising costs, particularly of fuel. High oil prices are putting pressure on airlines worldwide and carriers are responding by raising fares and cutting the number of flights they offer.

Iberia's first-half revenues rose to E2.6 billion, but it suffered a big fall in domestic passengers after the launch of a high-speed rail link between Barcelona and Madrid. Iberia has cut domestic capacity by 15 per cent as a result and plans further reduction as Europe's economy slows. Air France-KLM increased its revenues by 5.8 per cent to E6.3 billion, but this was offset by a 24 per cent increase in its fuel bill to E1.4 billion.

Last week British Airways disclosed that its first-quarter profits had fallen 88 per cent to £37 million because of sustained high fuel prices.

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