Spain's Iberia to launch budget airline

The battle for low-cost airline passengers is set to intensify after it emerged that Spain's largest carrier Iberia is to launch a budget airline to rival easyJet and Ryanair.

The Spanish airline is seeking backing from banks to launch the airline within the next two years.

Based in Barcelona, it will be a direct competitor for easyJet and Ryanair, both of which have major hubs in the city and nearby Reus and Girona.

But it comes as the low-cost market has never been more competitive, with 50 different airlines in Europe alone. Recent arrivals such as Spain's Vueling, the German airlines Air Berlin and Germanwings and Poland's Wizz Air are typical of the new raft of small companies capitalising on an ever-expanding market.

Vueling, which started in 2004 and whose principal market is Spain, announced a turnover of €115m (£79m) last year and plans to go public within two years.

Iberia, which flies to seven British cities, has not secured "slots" for the unnamed low-cost version. The company, whose president is Fernando Conte, is in talks with La Caixa and Caixa Catalunya, two of the largest savings banks in Spain, to obtain backing. The move comes after Iberia announced last week that it is to reduce 17 per cent of its domestic routes after low-cost airlines such as Vueling made competition impossible.

The Spanish newspaper Expansion reported yesterday that Iberia wants to avoid following the path taken by British Airways in taking on all the financial responsibility when it launched its budget carrier Go. It was sold just over a year after launch. Instead, Iberia wants to have a minority share in the new airline.

The Spanish company has also ruled out setting up a separate company to avoid confrontations with the unions over pay. One secret of low-cost airlines is that pilots are paid less than if they work for full-price carriers.

But competitors were dismissive of Iberia's plans. Toby Nicol, a spokesman for easyJet, which flew 30 million passengers to Europe last year, said: "They have come into this game five years too late. All national airlines who have tried this have been caught up in domestic problems.

"It is simply arrogance on their part that they think they can come into this part of the business without knowing anything about it."

And analysts predict the current number of low-cost airlines is already "unsustainable".

David Stewart, of the aviation consultancy AeroStrategy, said: "The total changes from week to week, as some carriers go belly up while low interest rates, a glut of second-hand aeroplanes and the success of the market leaders continue to entice new entrants into the market."

Iberia's share of the Spanish market - its biggest earner - fell 0.4 per cent to 15.6 per cent last year, according to figures released by the company yesterday.