Madrid (Thomson Financial) - Spanish airlines are facing growing pressure on their domestic routes from the expansion of the country's high-speed railway network, which the government says will be the world's most extensive by 2010.
State-owned railway operator Renfe opened a bullet train service between Madrid and Malaga on the Mediterranean coast in December and between the Spanish capital and Barcelona, Spain's second-largest city, two months later.
"We have the largest amount of high-speed rail under construction, with five times more than the next country, Japan, and in just two years we will have the most kilometres of high-speed in operation," Deputy Prime Minister Maria Teresa de la Vega said at the time. The government plans to have 10,000 kilometres (6,200 miles) of high-speed railway track in place by 2020, meaning 90 percent of Spain's population will live less than 50 kilometres from a bullet train station.
Earlier this month Spanish flag carrier Iberia blamed the opening of the new links to Barcelona and Malaga for a 0.5 percentage point fall in its domestic load factor in the first quarter from the same time last year to 69.2 percent. The decline came even though the airline had slashed capacity on its flights within Spain by 13 percent during the first three months of the year.
Iberia chairman Fernando Conte, who has called the competition posed by bullet trains "tremendous," said the carrier would push ahead with plans to reduce its capacity on domestic flights by 15 percent during the rest of 2008.
It plans to reduce capacity on its flights between Madrid and Barcelona, one of the world's busiest air routes, by up to 20 percent by using planes with smaller capacity but maintaining the number of daily flights on the route.
The airline's strategy is to gradually reduce its domestic flights, where it also faces stiff competition from low-cost airlines, and increase its long-haul flights, especially to Latin America.
Iberia is the market leader on flights between Europe and Latin America. Other carriers are also struggling to compete with the high-speed trains. Spanair, the second-biggest Spanish airline, has reduced the number of its flights between Madrid and Malaga while loss-making low-cost airline Vueling Airlines SA cancelled its summer connection between the two cities.
The high-speed AVE trains can make the 660-kilometre trip between Madrid and Barcelona in about two and a half hours.