International Airlines Group, formed from the merger of Iberia and British Airways last year, said on Thursday it had set up a new carrier to handle short- and medium-haul flights from Spain, called Iberia Express.
The new airline, conceived to feed connections to Iberia's profitable long-haul routes, would offer business-class cabins as well as tourist and use Madrid's Barajas Airport as a hub, the group said.
Iberia Express will begin operations in March of 2012 with four planes, the chief executive of Iberia Rafael Sanchez-Lazano said following the announcement.
The low-cost airline would be operating 13 planes and a workforce of 500 people by the end of next year, he said.
Iberia had been studying the creation of a no-frills carrier for two years due to tough competition from low-cost rivals Ryanair and easyJet.
Unions had been reluctant to sign off the plan. Last week, Iberia pilots in the Sepla union, together with cabin crew, said they would call a strike if reports of the plans for a spin off company were confirmed.
"Now they've heard our plans, I believe they have no reason to call a strike because the project has no effect on agreements we already have with the Iberia workforce and no Iberia worker will lose their jobs," Sanchez-Lozano said.
The carrier's creation would not affect agreements held with Vueling and Air Nostrom, IAG said.