'Despite the potential longer term benefits for Qantas and BA, the airlines have not been able to come to an agreement over the key terms of the merger, at this time,' Qantas said in a statement on Thursday.

The statement said the airlines would continue to work on their joint business between Australia and the United Kingdom through the Oneworld global alliance, which brings together 10 of the world's carriers in a code-sharing partnership.

Qantas new chief executive Alan Joyce warned two weeks ago that a consolidation of the two airlines was not guaranteed.

Mr Joyce said at the time that a merger could be beneficial but that there were factors still being assessed.

The two airlines explored a potential merger by way of a 'dual-listed company structure' in which each company would retain its name and branding. They gave no other details.

The Australian government had insisted that Qantas remain majority Australian-owned.

Analysts have been expecting consolidation in the aviation industry because the global economic crisis combined with soaring oil prices earlier this year have severely crimped passenger demand.

Mr Joyce, who took over as CEO last month, had said the consolidation would allow Qantas, the world's 10th largest airline, to remain competitive in the challenging airline industry.

Thursday's announcement came after the Australian stock market closed. -- AP