The chief executive of International Airlines Group (ICAG.L) joined the head of Dubai's Emirates and other industry leaders in predicting further retrenchment, as weaker airlines struggle to generate the cash needed to ride out high oil prices.

"I expect to see significant moves on the subject of consolidation as we move through the year and into next year," Walsh told the AFCA aircraft finance conference in Barcelona.

Although some airlines like IAG itself are expected to gobble up smaller rivals, Walsh said the shake-up would also include "probably the cheapest form of consolidation for the industry and that is where we see airlines fail".

About half a dozen European airlines have folded in the past year including Barcelona-based Spanair which stopped trading in January despite a cash injection from the Catalan government.

Walsh delivered his comments with a warning to striking Spanish pilots that Iberia would "have no future" if it did not see through reforms that include the creation of low-cost Iberia Express, designed to replace labour rules at the main carrier.

Spanish pilots are staging a series of strikes to try to halt the creation of the cheaper sister airline.

Walsh, who led BA to a merger with Spain's Iberia under the umbrella of IAG last year after a bitter series of cabin crew strikes in the UK, said he would not back down on the move to get rid of pilot contracts he called "frankly outrageous".

"For anyone who doesn't know me I am not known for backing down in the face of threats of industrial action - and I certainly don't back down when faced with (actual) industrial action. Therefore we will see this restructuring through."

Spanish pilots' union Sepla accused Walsh of double standards in restructuring Iberia by the back door.

"Stripping capacity from the main group like this is a decision that no other long-haul carrier has taken - not Lufthansa, not Air France ... Why doesn't BA create a low-cost division?" a union spokeswoman said.

In further blunt comments, Walsh said IAG would close two loss-making subsidiaries inherited from the acquisition of Lufthansa's (LHAG.DE) UK unit bmi if it is unable to sell them.

IAG plans to keep the main bmi airline, but is struggling to sell its low-cost and regional units, bmibaby and regional. It meanwhile continues to seek acquisition targets.

"Our approach will be one of greater caution. We are not looking to consolidate just to make IAG bigger," Walsh said.

HAILS GULF CARRIERS

Walsh has led a charge among European airlines against what the industry regards as over-regulation and excess costs, while heavyweight Gulf carriers like Emirates, Abu Dhabi's Etihad and Qatar Airways mop up traffic for fast-growing East-West hubs.

Walsh defended the record of Gulf carriers from charges of unfair competition levelled by rivals such as Air France (AIRF.PA).

"I am actually somewhat different from my counterparts around Europe. I have no problem with what Middle East carriers are doing. Rather than be critical I think we should look to them as an example of what can be done."

However, he questioned whether competition would support all three Gulf majors, whose expansion accounts for a quarter of unfilled orders for large aircraft at Airbus (EAD.PA) and Boeing Co (BA.N), and he made a pitch for some to join alliances like BA's oneworld.

"I personally believe the industry has matured to a point where we'll see Middle East carriers joining the alliances this year. I'd be amazed if this doesn't happen. Within oneworld we have been debating it. To my mind they are the key players."

Alliances were set up in the 1990s to help airlines take advantage of each other's marketing and traffic in the face of tightly controlled bilateral traffic rights, but industry critics say joining the global clubs can be costly.

Emirates, the largest Arab carrier, has ruled out joining an alliance as it focuses on keeping a uniform brand across its own huge network, while Qatar Airways has said it is not a priority, while leaving the option open in the future.

Air France-KLM said last week it was discussing partnerships with Etihad but the Abu Dhabi carrier has not commented specifically on whether it is looking at alliances.

(Reporting by Tim Hepher; editing by Matthew Lewis)

• A Permanent Economic Emergency