Iberia Express will operate as part of Iberia’s short- and medium-haul network, and is being created to compete against low-cost competitors including Ryanair and easyJet in the Spanish domestic and European market.
The carrier will start flying next summer from its Madrid hub, offering business and economy seats.
IAG said in a statement that Iberia Express will have lower operating costs than Iberia’s current loss-making short- and medium-haul business. It added that it would look to develop new markets and destinations to strengthen the Madrid base, over time.
Two weeks ago, easyJet founder Sir Stelios Haji-Ioannou announced plans to launch a new airline, Fasjet, registering a URL for the brand. Further plans for the airline are yet to materialise.
The latest low-cost carrier enters the market at a time of apparent growth for competitor easyJet, which has undergone a revamp of the airline’s marketing strategy resulting in the launch of a £50m pan-European ad campaign.
BA has also been looking to rebuild its brand with a major new campaign focusing on its "To fly. To serve" strapline.
Elsewhere in the market, uncertainty has dogged a number of short-haul airlines, such as BMI and Aer Lingus.
Lufthansa has been floating the idea of selling BMI for over a month, while IAG chief executive Willie Walsh has made "no secret" of his interest in acquiring the carrier, while the Irish government is attempting to sell its 25% share in Aer Lingus.
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