IAG, the parent company of Iberia and British Airways, has agreed to buy Spanish airline Air Europa for €1bn in a move it says will strengthen Madrid’s position as a European hub.

It will be the airline group’s third Spanish brand, behind the flag-carrier and low-cost Vueling.

In a statement to the stock exchange, IAG said Air Europa, which operates flights to 69 destinations on 66 aircraft, would boost its presence on the South American transatlantic market and help Madrid compete with Frankfurt, Amsterdam, Paris Charles de Gaulle and London Heathrow.

The deal also means IAG would dominate the Spanish domestic market. Iberia, Vueling and Air Europa collectively account for 84 percent of domestic seats, according to the Centre for Aviation (CAPA).

The Air Europa brand "will initially be retained" and the company will remain as a standalone unit run by Iberia.

Air Europa passengers will be able to use IAG’s loyalty currency, Avios, the company said. However, the carrier will leave Skyteam — the marketing alliance led by Delta and Air France-KLM.

Willie Walsh, Chief Executive of IAG, said: “IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015, and we are convinced Air Europa presents a strong strategic fit for the group.”

Luis Gallego, Chief Executive of Iberia, said: “This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America.”

Privately-owned Air Europa operates scheduled domestic Spanish and international flights to 69 destinations, including long-haul routes to Latin America, the United States, the Caribbean and North Africa. In 2018, it revenue of €2.1 billion and an operating profit of €100 million.