The owner of British Airways and Iberia has announced a wholesale restructuring of the underperforming Spanish airline as it tumbled to a first-half group loss and cut its full-year earnings guidance.
Willie Walsh, the head of International Airlines Group, said the Iberia reorganisation would mean shedding jobs and reshaping its network.
"Iberia's problems are deep and structural and the economic environment reinforces the need for permanent structural change," Walsh told reporters. "The plan should be completed by the end of September and will encompass every aspect of Iberia's business."
Against a background of soaring fuel costs, Iberia made an operating loss of €263m (£206m) in the first half of 2012, compared with a €13m profit at BA.
"It's been a tale of two airlines and two cities with BA and London doing well and Iberia and Madrid struggling," said Davy analyst Stephen Furlong.
"Iberia has been hit by tough economic conditions in Spain, it has a high cost base and labour costs, Spanish airport charges have risen and it is struggling to compete with low-cost airlines."
Shares in IAG, Europe's fourth-biggest airline group by market value, have fallen 10 per cent in the last three months.
They were 4.3 per cent down at 152.3 pence by 9:15 a.m. British time, making it the top faller on London's FTSE 100 and valuing the group at around £2.8bn.