Merger talks between British Airways and Australian carrier Qantas will continue today amid speculation about the formation of a giant new airline.
BA shares leapt by more than 14% at one stage yesterday as BA said it was looking to achieve a tie-up through a dual-listed company structure.
Should a merger come about, both airlines - which already jointly market, or codeshare, on some routes - would retain their identities.
BA said that the Qantas talks would not affect its talks about a merger with Spain's Iberia in a move that could eventually lead to a tie-up with giant US carrier American Airlines.
BA held a stake in Qantas from 1993 to 2004 but sold its 18% in 2004, while continuing its codeshare agreement.
'In response to recent media speculation, British Airways confirms that it is exploring a potential merger with Qantas Airways via a dual-listed company structure', a spokesman for BA said.
'The discussions between BA and Iberia are continuing. There is no guarantee that any transaction (with Qantas) will be forthcoming and a further announcement will be made in due course, if appropriate,' he added.
The speculation over a BA-Qantas tie-up came yesterday as the Australian Government released a transport green paper considering whether to overhaul foreign ownership rules in Qantas that currently limit a single foreign holding to 25% and 35% in total for all foreign airlines.
The prospect of consolidation in the airline sector has been fuelled by sky-high oil prices and the prospect of a deep global recession.
BA recently announced a 90% fall in half-year profits and said it was axing services from its summer 2009 schedule.
Qantas - which stands for Queensland and Northern Territory Aerial Services - was formed in 1920. It employs around 37,000 people and flies to 145 destinations in 37 countries. Qantas has an airline subsidiary, Jetstar, and has just taken delivery of its first Airbus A380 superjumbo.
Michael O'Leary, chief executive of Ryanair, said the merger talks between BA and Qantas were part of a worldwide trend towards larger airlines.
'Airlines need to get bigger if they are going to continue to drive down fares and encourage people to fly, particularly in a very deep recession,' he said.
