Swiss International Airlines has confirmed it plans to spin off its regional European operations by setting up a subsidiary company.
Swiss, which is being acquired by Germany's Lufthansa, is under pressure from its new owner to cut costs.
The Swiss board approved the creation of Swiss European Airlines recently. The company name was registered with the authorities in September, and a request for an airline operating certificate has been lodged with the Federal Office for Civil Aviation.
Swiss announced on Monday that preparations were underway to set up the new carrier.
"The move will make a further contribution to enhancing Swiss' competitiveness, and should provide a basis for growth in the European services sector," it said in a statement.
Confirmation of the plans comes less than a month after Pieter Bouw, the chairman of Swiss until he stepped down in September, told swissinfo that the creation of Swiss European Airlines was "the only way forward".
The new airline should take to the skies by the end of the year. All Swiss' regional pilots will be transferred to the new carrier and cabin crew will be provided by the parent company.
Swiss European is expected to recruit its own staff at a later date and build up its own workforce, according to Swiss.
Wolfgang Mayrhuber, the chief executive of Lufthansa, told the SonntagsBlick newspaper that spinning off regional operations should help cut costs at Swiss. He said the airline had to become profitable as soon as possible.
"Swiss must break even next year and contribute positively to group profits by 2007," he said.
Swiss has been told to save SFr300 million ($235 million) net annually.
"All Lufthansa subsidiaries have the same task: make money and avoid wasting cash," said Mayrhuber.
Setting up a separate company for regional services has been on the cards for some time at Swiss. In May 2003 the company announced the creation of Swiss Express to compete with low-cost carriers.
But airline executives were soon forced to abandon plans to launch the new carrier following opposition from the unions.
"When we proposed this, the pilots' union was completely against it. We had to give in because we could not put everything at risk. A strike at that time would have meant death for the whole company," Bouw said last month.
Swiss was launched in March 2002 following the amalgamation of regional carrier Crossair and the remains of national airline Swissair, which collapsed in 2001.
The airline is in the midst of reorganising its regional services after tripling its net loss during the first six months of the year. It is also facing an ongoing conflict with the Swiss Pilots union.
The former Crossair pilots, who feel they are getting a rough deal with the reorganisation, want any job cuts to be shared equally between themselves and the ex-Swissair pilots who fly on long-haul routes.
At the end of June, Swiss announced plans to cut its regional fleet from 35 to 24 aircraft by next summer. It will only keep its Avro-RJ jets, and rid itself of the Embraer 145 and Saab 2000 planes that carry less than 100 passengers.
The number of jobs that could be lost is still unclear. Around 100 pilots and 85 cabin crew are affected by the reorganisation.
The planned fleet reduction came on top of plans announced in January to cut between 800 and 1,000 jobs. At the end of June, Swiss employed 6,477 people.
swissinfo with agencies
Swiss had 133 aircraft and 10,000 full-time positions when it took to the skies on March 31, 2002.
In its first year of operations, the company recorded a SFr980-million loss. This was followed by losses of SFr687 million in 2003 and SFr140 million last year.
After different restructuring measures, Swiss now has 82 aircraft and approximately 6,500 full-time positions.