The merger of British Airways and Iberia will be delayed as the UK airline's managers struggle to cope with a collapse in passenger numbers.

Willie Walsh, the chief executive of BA, said that the deal with the Spanish flag carrier would take longer than expected because the economic slowdown in the United States and Britain had hit ticket sales.

BA's passenger numbers fell by 4.8 per cent last month and its premium long-haul numbers, vital to its profitability, fell by 8.6 per cent.

BA and Iberia announced their plan to merge in August in a deal that would create Europe's largest airline by passenger numbers and its third-largest by value. Mr Walsh said then that the deal was a response to the crisis of high fuel prices and falling demand that had gripped the airline industry; now BA says that the crisis will delay its merger, probably until the middle of next year.

In a Spanish interview, Mr Walsh said: “I can say that the merger will take longer than expected — especially due to the problems of the sector, which have forced us to focus more on our business than in the deal.”

This change has prompted speculation that BA wants to delay the deal after a collapse in its share price. BA's stock dropped 19p to 145p yesterday and is down 67 per cent from its 12-month peak of 450p. Iberia's share price is also down - 57 per cent from its 12-month peak of €3.70.

The rapid fall in BA's market value could put its shareholders at a disadvantage in negotiating the terms of the merger.

Caja Madrid, Iberia's largest shareholder, said yesterday that it expected the new company to be split 60-40, with BA taking the larger share. Based on present prices, the split would be 67-33, but Caja has said that BA's large pension deficit would result in a bigger stake for Spanish shareholders.

Analysts said that Caja was trying to manipulate a better deal in public to take advantage of BA's weak share price. The City expects BA to wait for its share price to rebound before finalising terms with the smaller Spanish airline.

Analysts at Dresdner Kleinwort said: “British Airways traffic stats for September revealed the long-awaited slowdown in long-haul premium volumes. We expect near-term concerns around premium volumes to continue to weigh on the shares.”

Aer Lingus, the Irish carrier, said yesterday that it would respond to the crisis by cutting 1,500 jobs from its 4,000-strong workforce. The airline will also impose a pay freeze until the end of 2009. It has reported losses of €22 million (£17 million) this year and is facing projected losses of more than €100 million next year, subject to fuel costs.

EasyJet, the low-cost airline, bucked the trend of falling passenger numbers to report a 17 per cent increase in September. The carrier was boosted by the addition of GB Airways, which it bought last October, and the repatriation of passengers that had booked with XL, the bankrupt travel group.

Ryanair said last week that its September passenger numbers had increased by 20 per cent.

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