BA in a bid to merge with Qantas as air crisis grows

Analysts said the announcement highlights the crisis in the airline industry, as BA is already in merger talks with the Spanish flag-carrier Iberia and discussing a separate marketing alliance with American Airlines. All the deals are aimed at stripping out costs and avoiding route duplication.

Virgin Atlantic - one of the few rivals to BA and Qantas on the so-called "kangaroo route" from London to Sydney - said a merger of its two rivals would increase BA's domination at Heathrow airport and is likely to result in increased fares on the route.

By trying to pull off so many deals at once, British Airways is aiming to take on its great European rivals, Air France and Lufthansa.

The industry has already seen more than 30 airlines collapse this year and is expected to see carriers' post-aggregate losses for 2008 running into billions of dollars.

It has been an open secret for some time that BA, led by Willie Walsh, has wanted to cement links with worldwide allies like Qantas who are part of the Oneworld alliance of airlines. Oneworld already has reciprocal seat-selling and marketing arrangements.

However, news of BA's move to pull off a three-way, simultaneous, £6 billion merger with Qantas and Iberia shows the depth of the problems faced by global airlines, and the pace at which the recession is likely to drive consolidation.

It was only last month that Lufthansa took control of BA's great UK rival bmi British Midland, having already bought the Swiss flag-carrier.

In the biggest single European deal so far, Air France tied up with the Dutch carrier KLM. Even budget airline Ryanair is trying to become a European giant by buying Irish rival Aer Lingus.

In a statement, BA said today: "British Airways confirms it is exploring a potential merger with Qantas Airways via a dual-listed company structure. The discussions between British Airways and Iberia are continuing."

BA was forced to make the statement after speculation about a deal arose in Sydney. Its shares have more than halved in recent months as the airline warned that, after last year's record-breaking £875 million profits, it would barely break even this year. The statement from BA sent its stock soaring 11%, up 15.9p to 155.6p.

BA used to control nearly 20% of Qantas before its former Aussie chief executive Rod Eddington ordered the sale of the stake in 2004 to repair BA's damaged finances.

Stuart James, analyst at City firm Calyon said: "It's an interesting development and probably signals one of two things.

"Either BA has its mind set on an eventual global merger/joint venture between American Airlines, British Airways, Iberia and Qantas.

"Alternatively, BA is playing hardball with Iberia over the terms of the BA-Iberia merger. We expect the economic slowdown to increase the pace of consolidation in airlines with mergers/joint venture within existing alliances being the most likely scenario."

Fares from London to Sydney are already set to go up from next year after Chancellor Alistair Darling announced a doubling in passenger taxes on flights leaving the UK.

Trucking group Stobart today snapped up Southend Airport for £21 million. It bought the site from Regional Airports Ltd, funding the deal via an £11.5 million rights issue at 73p a share.