For two years, Iberia Airlines of Spain has been trying to create a low-cost subsidiary but has faced strong opposition from its unions. Now IAG, parent company of British Airways and Iberia, has announced the creation of Iberia Express, a medium- to short-haul airline set to launch by the summer of 2012, and the unions are once again threatening action.

The board of International Airlines Group (IAG) has approved the creation of a new subsidiary to feed Iberia Airlines' more profitable long-haul flights. Iberia has seen its domestic traffic overtaken by low-cost European airlines Rynair and EasyJet. With its higher operating costs, Iberia has found it challenging to compete domestically, so the airline is setting its sights on having a primarily international operation with a domestic "feeder" network operated by Iberia Express.

The new airline will operate a fleet of 4 Airbus A320 aircraft and plans to expand to 13 aircraft by the end of 2012. Operations are set to start in the summer and will offer business and economy seats from Madrid at fares the company calls "competitive." The union representing Iberia pilots is threatening industrial action over the move. Prior attempts by Iberia to create a low-cost subsidiary had been hampered by the union's insistence that the new airline be part of the main Iberia operations, even with a lower-tier wage scale for its staff.

Iberia executives feel that the cause for a strike is moot because current agreements with staff will remain in place. According to a press release from Iberia, "The creation of Iberia Express will not change the terms and conditions of existing Iberia employees and it will not modify the existing relationships with Vueling and Air Nostrum." The new airline will hire brand new employees at market rates. IAG is banking on the success of Iberia Express to return the main carrier to profitability. IAG CEO Willie Walsh was former head of British Airways where he faced a series of industrial actions by the airline's cabin crew, particularly in 2009 and 2010.

Note of interest: Even if IAG manages to avoid any action by Iberia's unions, depending on what Spanish business laws say, the company may have to contend a naming battle with another Iberia Express – a food catering business in northern Spain.