The owner of British Airways is to axe 4,500 jobs as it battles to save its loss-making Spanish airline Iberia.
International Airlines Group (IAG), which was formed when BA merged with the Madrid-based carrier in 2011, will cut Iberia's capacity by 15% and downsize its fleet by 25 aircraft as it attempts to turn around an operation which made losses of 262 million euro (£210 million) in the first nine months of this year.
Iberia's troubles and the impact of Superstorm Sandy, which grounded flights into and out of the US east coast last month, mean IAG expects an operating loss of about 120 million euro (£96 million) this year.
BA, which achieved profits of 286 million euro (£228 million) over the first nine months of this year, saw revenue growth for the last quarter held back as the London Olympics reduced demand for business travel.
However, there are signs of a recovery in the current quarter, although the airline group continues to face rising fuel costs, with the bill showing a 21% year-on-year increase in the three months to September 30.
Group chief executive Willie Walsh said the full integration of its rival bmi, which was bought by IAG for £172 million in April from German carrier Lufthansa, had been achieved smoothly and efficiently.
IAG, which made an operating profit of 270 million euro (£216 million) in its busy third quarter trading period, became Europe's third biggest airline group in January 2011 following the merger of BA and Iberia.
The group's Spanish airline has been hit by the European economic crisis, but its chief executive Rafael Sanchez-Lozano said the problems were "systemic and pre-date the country's difficulties".
He said Iberia was "burning" 1.7 million euro (£1.4 million) every day and had to modernise and adapt to the new competitive environment as its cost base was significantly higher than its main competitors in Spain and South America.
Iberia's staff, some of whom went on strike earlier this year, were today threatened with "deeper cuts and more radical reduction" if an agreement is not reached with their unions by January 31.
Mr Walsh said the turnaround plans were critical for the future of Iberia and safeguarding about 15,500 posts across the Madrid-based business.
He added: "For too long the narrow self interest of the few has damaged the long-term future for many.
"We will not hesitate to take the necessary steps to protect the interests of our shareholders, our customers and our employees."
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said consumer demand for low-priced fares continued to apply pressure across the industry, with flexible labour laws now lying at the heart of the issue.
He said: "As a global industry, airlines and governments are unable to duck the issue of labour competitiveness."
He added that Iberia's strong links to Latin America, where there is expected to be growth, was a potential reward worth fighting for.