Focus on long haul operations
Iberia has launched a new strategy plan which will see it concentrate on its long haul services and create a new airline with a hub in Madrid.
The airline said the plan, approved by directors, was in response to "declining revenues, weak demand and mounting losses".
The Spanish national carrier said previous measure taken, including cuts in staff and capacity and the grounding of aircraft, had proved "insufficient".
Rafael Sánchez-Lozano, Iberia's chief operating officer, said the current situation was unsustainable.
In the first six months of the year, revenue had dropped 18%.
He added: "The airline industry has never experienced such a dramatic situation. It is essential for us to use imaginative means to transform Iberia into a sound and viable project."
The scheme, called Plan 2012, will see the carrier concentrate on growing its long haul routes, many to South America where it is market leader.
Iberia said it also aimed to cut seats on its short and medium haul routes in addition to reductions already announced.
It said to achieve this "paradigm shift", it planned to create a new airline based in Madrid to feed traffic to its long haul network.
Iberia, which has been in merger talks with its oneworld alliance partner BA for more than a year, said it aimed to have the new airline running by 2011.
Plan 2012 also aims to cut costs in addition to those announced in August.
New measures include a freeze on recruitment, a company wide pay freeze in 2011 and 2012, early retirement for all cabin crew over 55 and lay off for about 200 ground staff.
Iberia, which announced a Q2 loss of €72m, said in August it planned to cut capacity by 6% above the previous figure of 4.3%, the grounding of three more aircraft on top of the six already taken out of service, new staff cuts beyond the 4.7% of staff already made redundant in Q2 and the postponement of the delivery of an Airbus A340/600.
To try and increase revenue, Iberia said that under Plan 2012, it would introduce a "battery of measures".
Among these was a re-launch of its business classes including a new business class on long haul routes.