KLM and Air France today denied they were negotiating for the French carrier to take an equity stake in its Dutch rival after speculation sent their share prices skywards.
Air France denied it had sealed a deal, saying talks between the two carriers were focused on bringing the Dutch airline into the SkyTeam alliance.
Air France said talks between KLM and other SkyTeam members had been going on for months but had picked up pace since August's announcement that Northwest Airlines - KLM's transatlantic partner - had sealed a marketing deal with Continental Airlines and Delta Air Lines.
KLM shares jumped as much as 8.5 per cent in early trade; Air France gained up to 6.3 per cent. But the price fell again after the carriers denied the report in French daily Les Echos.
KLM has often stated its belief that the airline industry is ripe for consolidation, saying it sees three major alliances emerging in Europe in which it will play a significant role.
Over the years, KLM and BA have repeatedly tried but failed to merge. A major sticking point has been landing rights, which have historically been tied to an airline's nationality.