Aer Lingus, the loss-making Irish airline, announced Wednesday it will lay off more than 15 percent of its staff, cut pay rates and expand operations in Britain to survive competition with its much bigger rival, Ryanair.

The plan was the opening salvo fired by Aer Lingus’ new chief executive, Christoph Mueller, who since taking the reins in Dublin last month has declared that the formerly state-owned and union-friendly airline has only a 50-50 chance of survival.

Labor unions warned they would resist Mueller’s plans to cut 676 positions from the 3,900-strong work force and demand more from staff as part of his formula to trim euro97 million ($143 million) from annual operating costs by 2011.

But investors liked the move and sent Aer Lingus’ battered shares 7 percent higher to euro0.76 in early trade.

In a statement, the Aer Lingus board of directors said the airline must “compete more effectively against a peer group with significantly lower operating costs” — specifically Dublin-based Ryanair. It said trade unions faced a stark choice to accept tougher work conditions or risk the company’s collapse.

“Aer Lingus cannot survive in a situation where staff are paid significantly more and operate less efficiently than comparable positions at its peers,” the board said. “Aer Lingus must rationalize work practices — in the air, on the ground and in support staff areas — to introduce best practice processes and procedures, and at least match its competitors in terms of productivity. Aer Lingus’ operational flexibility cannot continue to be held back by restrictive practices that date from the past.”

Aer Lingus also said it must exploit its current license to operate hubs in the United Kingdom beyond its current bases in London’s Heathrow and Gatwick airports and Belfast International Airport in neighboring Northern Ireland. It said the company must broaden its customer base from “the current dependency on the Irish consumer.”

Christina Carney, assistant general secretary of the Impact trade union representing 1,100 Aer Lingus cabin crew, said they had already endured too many staff cuts and lost privileges.

“We’ve given enough. The company needs to respect what the cabin crew have already done and stop breaking agreements, which they consistently do,” Carney said.