Iberia warns that its pilots must agree to the restructuring of its loss-making short-haul operations this year or risk that the business will be contracted out to third-party airlines.
The cost reduction effort will ensure the airline's vital feeder network for its international operations is flexible and sustainable in the long-term, says the Iberia chairman and chief executive Antonio Vazquez.
The outcome of talks with its flightcrew union will decide the way forward, says Vazquez, who becomes chairman of the International Airlines Group when Iberia merges with British Airways later this week.
Facing competition from both low-cost carriers and high speed train services, Madrid-based Iberia is "simply not making money on short- and medium-haul operations", says Vazquez.
"We cannot operate with the costs of Iberia and the revenues of a low-cost carrier. We must adapt revenues to the possibilities of the market, otherwise we will lose market share and put our long-haul feeder operations in danger."
Vazquez says that its long-haul business is the priority, but with 70% of this traffic being transit, a restructured feeder network is vital to its operations.
"We have agreed to have a new model of operation with every trade union except the pilots. We're negotiating with them right now," he says.
The outcome of these talks will decide the form the new business model will take, says Vazquez. Negotiations centre around reducing Iberia's cost base through a new agreement which focuses on productivity and pay.
However, if agreement cannot be reached, there are two other alternatives being considered: "We could set up an entirely new company outside Iberia or could operate through third parties," says Vazquez. "We will never give up on our responsibility to have a new short-haul model and we will have it done this year."