Passenger traffic at Spain's Iberia fell 1.4 percent year-on-year in July it said on Tuesday, as domestic traffic tumbled 26.7 percent after it cut flights and faced competition from a new Madrid-Barcelona train.

Iberia's passenger load factor fell to 84.6 percent compared to 86.3 percent a year earlier.

The Spanish flag carrier announced last month that it was in merger talks with British Airways as it battles high fuel prices, growing competition on European routes and flagging demand in the wake of a sharp economic downturn in Spain against the background of a general global slowdown.

Capacity rose 0.6 percent year on year in July, the airline said in a statement, as a 17.8 percent cut in domestic capacity was outweighed by increases on European and long-haul routes.

The figures came after British Airways said passenger traffic -- the total distance flown by paying passengers -- fell 3.5 percent in July and Air France-KLM said its traffic rose 1.8 percent.