IAG’s board has approved the launch of Iberia’s new subsidiary airline – Iberia Express – which will operate domestic and European flights.

IAG revealed in a statement, “the subsidiary is being established to compete effectively in the Spanish domestic and European market. Over time it will develop new markets and destinations and strengthen the Madrid hub, creating valuable new jobs for the Spanish economy.”

Iberia Express, which will be based at Iberia’s Madrid Barajas hub, will start operations in the summer of 2012. Iberia Express will feed onto Iberia’s long haul network in addition to creating direct traffic.

The low cost subsidiary will launch with four A380 aircraft initially. IAG plans to source its aircraft from existing fleet – it will have 13 A320s by the end of 2012.

Iberia Express will have lower operating costs than Iberia’s short and medium haul business. IAG plans to recruit pilots and cabin crew on lower wages, however and on different terms and conditions to those at Iberia.

Maintenance and ground handling will initially be provided by Iberia.

According to IAG, “The creation of Iberia Express will not change the terms and conditions of existing Iberia employees and it will not modify the existing relationships with Vueling Airlines and Air Nostrum-Iberia Regional.”