International Airlines Group, formed from the merger of Iberia and British Airways last year, said on Thursday it had set up a new carrier to handle short- and medium-haul flights from Spain, called Iberia Express.

The new airline, conceived to feed connections to Iberia's profitable long-haul routes, would offer business-class cabins as well as tourist and use Madrid's international airport Barajas as a hub, the group said.

Iberia Express will begin operations in March of 2012 with four planes, the CEO of Iberia Rafael Sanchez-Lazano said during a conference call with journalists following the announcement.

The low-cost airline would be running 13 planes and a workforce of 500 people by the end of next year, he said.

Iberia had been studying the creation of a no-frills carrier for two years due to tough competition from low-cost rivals like Ryanair and Easyjet and unions had been reluctant to sign off the plan.

Last week, the Iberia pilots in the union Sepla said, together with cabin crew, would call a strike if reports of the plans for a spin off company were confirmed.

"Now they've heard our plans, I believe they have no reason to call a strike because the project has no effect on agreements we already have with the Iberia workforce and no Iberia worker will lose their jobs," Sanchez-Lozano said.

The carrier's creation would not effect agreements held with Vueling and Air Nostrom, IAG said.