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The board of directors of Vueling Airlines SA (VLG.MC) approved its planned merger Friday with peer Clickair, as an oversupply of seats in Spain and stiffer competition has forced consolidation in the airline industry.

In a filing to the market regulator, the company said Clickair will increase its share capital to five million shares, and will later exchange each share for three Vueling shares. The exchange ratio will give each company an equal number of shares in the merged airline.

Vueling said it will issue 14.95 million new shares, doubling the number of shares outstanding.

At 1357 GMT, Vueling was trading 11% higher at EUR6.20, valuing the carrier at EUR92.69 million.

The agreement still needs approval from Clickair's board, Vueling added.

The new airline will operate under the Vueling name and be based in Barcelona.

Higher fuel costs and weakening demand for air travel in Spain has forced a shake out in the industry, especially among budget-minded low cost carriers like Vueling and Clickair. Both airlines have also suffered as low-cost rivals Easyjet PLC (EZJ.LN) and Ryanair (RYAAY) have added routes in Spain in recent years.

Vueling and Clickair initially agreed to merge last year.

Iberia Lineas Aereas de Espana SA (IBLA.MC), Spain's largest carrier by sales, is a key shareholder in Clickair and expects to control more than 45% of the new, merged low-cost airline without having to launch a full takeover bid for the company. The Spanish flag carrier is in merger talks of its own, with British Airways PLC (BAIRY).

Company Web site: www.vueling.com

-By Jason Sinclair, Dow Jones Newswires; 34 91 395 8127; jason.sinclair@dowjones.com

(Christopher Bjork contributed to this article.)