Iberia's new subsidiary Iberia Express has been given the go-ahead by the board of parent International Airlines Group to launch operations next summer.
The new division will operate part of Iberia's short and medium haul network from a base at Madrid Barajas using a fleet of Airbus A320s in a two-class, business/economy configuration. It will serve point-to-point markets as well as providing transfer feed onto Iberia's long-haul network.
"The subsidiary will offer competitive fares from Madrid and is being established to compete effectively in the Spanish domestic and European market," said IAG. "Over time it will look to develop new markets and destinations and strengthen the Madrid hub, creating new jobs for the Spanish economy."
The subsidiary will launch with an initial fleet of four A320s, growing to 13 aircraft by the end of 2012 - all sourced from Iberia.
"Iberia Express will have lower operating costs than Iberia's loss-making short and medium haul business," said IAG.
This will be achieved by recruiting staff to the airline "at market rates" and having "improved aircraft utilisation", it added. Initially, maintenance and ground handling has been awarded to Iberia.
"The creation of Iberia Express will not change the terms and conditions of existing Iberia employees or Iberia's existing relationships with Vueling and Air Nostrum," said IAG.