Britain's BA and Iberia of Spain have unveiled a new co-operation agreement aimed at cutting costs and improving customer service.

Under the deal, the two airlines will share facilities so as to improve passenger transfer services in Madrid, Barcelona and London.

They will also co-ordinate their sales and marketing activities and co-operate on network planning.

The deal will enable BA and Iberia to offer travellers a wider range of destinations and cheaper fares on some routes, the airlines said.

They added that the new arrangement comes in response to the downturn in the air travel sector after 11 September.

"Our proposal for closer co-operation is a competitive response to the changing and challenging market environment and marks a step forward in our efforts to progress consolidation in Europe," BA chief Rod Eddington and Iberia's chairman Xavier de Irala said in a joint statement.

Full-service carriers such as BA and Iberia are also facing growing competition on short-haul European routes from no-frills airlines like Ryanair and Easyjet.

BA and Iberia already have joint check-in and ticketing facilities in 24 European and south America cities.

BA owns a 9% stake in Iberia.