Iberia's plan to bid for rival Spanair may help the flag carrier as its dominance is eaten away by high-speed trains and low-cost airlines but an ageing fleet and rickety business make it a bit of a gamble, analysts said. Iberia said it would make a joint bid with leasing firm Gestair for Spanair, Spain's number two airline owned by Scandinavia's SAS but gave no indication of how much it would pay for the loss-making carrier. Buying Spanair would increase Iberia's share of domestic Spanish flights to about 70% from around half now, analysts estimate. Analysts welcomed the move, which should help Iberia stabilise ticket prices in a market squeezed by cut-throat prices on one side and high oil costs on the other.The public works ministry has given the proposed deal its blessing, soothing analysts fears' that it would fall foul of competition authorities. But worries still remained.

"Spanair needs a major restructuring both on routes and costs," Banesto brokerage said in a note, adding that Spanair's old and mixed collection of 65 airplanes could be a stumbling block for Iberia which is trying to homogenise its fleet.

Iberia sources have said competition concerns would not be a hurdle as new entrants were successfully eating away at the flag carrier's lead and could take any routes it decided to eliminate if it bought Spanair.

EasyJet and Ryanair plan to expand further in Spain having made strong inroads into both the European and domestic flight market.

At ground level, a new high-speed train link between Madrid and Barcelona is due to open later this week and expects to steal about 60% of passengers who currently use the profitable air link.

Last year, 4.8 million passengers flew between the two cities, 55 percent of them with Iberia.

BNP Paribas said Iberia was unlikely to have to pay much for Spanair, which made an operating loss of 32 million euros last year after three years of profit. It has debts of about 2.5 billion Swedish crowns ($393.5 million).

The likelihood of a bidding war breaking out is also minimal after private travel group Marsans and regional airline Air Nostrum said they would not make an offer for Spanair. (Reuters)