Air France KLM has confirmed reports that it is considering an alliance with European transport group Veolia which could see it become a train operator and mark the first time an airline has commissioned its own high speed rolling stock.

The company, which is the world's biggest airline by revenues, is considering the feasibility of establishing a standalone rail operation in response to rising fuel costs which could soon make it more economic for the airline to replace short-haul flights with train services. Air France already block books seats on a number of France's state-owned SNCF rail services and is expected to increase its allocation in the coming months. The airline has spent the past four years looking at the feasibility of establishing a rail venture but the combination of new EU rules opening up the European network to greater competition in 2010 and the rising cost of fuel mean there is an increasingly strong business case for the plan.

Veolia Transport, a subsidiary of French utility group Veolia Environnement, has several train operating companies in Continental Europe and has previously run services in the UK under the now defunct Connex brand. However, it does not currently run high speed services, which are dominated by SNCF, Deutsche Bahn, Thalys and Eurostar.

Speaking to Reuters new agency, an Air France KLM spokesman said: "As part of the opening to competition of rail transport in 2010, Air France and Veolia are looking into the possibility of a partnership to create a new high speed rail player on the European scene. We are reviewing the feasibility and possibility of such a project, but it is too early to discuss its terms."

In theory, Veolia could run trains under the Air France brand from the airline's base at Paris Charles de Gaulle airport to destinations across Europe. Services would be solely international because European legislation is set to liberalise only the international rail passenger market. Private train operating companies will be able to submit applications to run services from January 2010.

Along with rising fuel prices, new high speed links between European cities mean airlines face losing business on once-popular short-haul routes. Scheduled flights between Paris and Brussels have virtually disappeared as a result of Eurostar services and other short-haul routes, such as Paris-Frankfurt, are expected to see a similar decline in demand for air travel. Last year France's LGV Est line opened between Paris and near Strasbourg, on the German border, while a high speed link between Antwerp and Amsterdam in the Netherlands is due to open in the next year.

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