From typicallyspanish.com

Spain Business
Vueling cancels Madrid Málaga flights as the AVE train gets upto speed
By h.b.
Jan 19, 2008 - 6:52 PM

Vueling has announced the cancellation of its Madrid – Málaga service this coming summer. The Spanish low cost carrier has been running the route over the past few years, and has denied the decision to make the cut is in any way affected by the new AVE high speed train line running between the two cities, opened last month. They say the decision was made at the end of last season.

It comes after Spanair also announced that it is to reduce the number of flights it runs between Málaga and Madrid, but said it was prepared to compete with the AVE, particularly for business travellers.

RENFE Spanish railways has said that 1,650,000 people will use the AVE Málaga service this year, and that this number will reach two million in 2009, double the number carried by the previous Talgo 200 service.
Civil Aviation has said they expect airline passenger numbers between Madrid and Málaga to reduce by 40% because of the AVE.

Meanwhile the Portuguese Prime Minister, José Sócrates, has said that work is starting on the construction of the Lisbon Madrid AVE high speed line. He said the train would be in service in 2013.