International Airlines Group (IAG) (ICAG.L), formed by the 2011 merger between the two airlines, posted a 25 percent fall in third-quarter operating profit on Friday, hit by rising fuel costs and a poor performance from its Spanish unit.

IAG's third-quarter operating profit was 270 million euros ($343.63 million), down from 363 million euros in the same period last year.

"Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future," IAG Chief Executive Willie Walsh said in a statement on Friday.

Iberia has performed worse than BA in recession-hit Spain, with its low-cost carrier Iberia Express hit by labour disputes.

IAG expects to make an operating loss of about 120 million euros in 2012, after trading losses related to its bmi subsidiary and exceptional items.

As part of a restructuring plan unveiled on Friday, IAG said it would cut capacity in Iberia's network by 15 percent in 2013, focusing on profitable routes and downsizing its fleet by 25 aircraft.

It set a January 31 deadline to reach an agreement with trade unions over the Spanish job cuts, without which it said there could be more dismissals.

On Thursday IAG offered to buy the rest of low-cost airline Vueling (VULG.MC) in an attempt to stem losses in Spain and shake up its short-haul business in the country. ($1 = 0.7857 euros)

(Reporting by Rhys Jones and Tracy Rucinski; Editing by David Goodman)

• A Permanent Economic Emergency