British Airways Plc, American Airlines, Cathay Pacific, Canadian Airlines and Qantas announced the link up in London, promising improved service and efficiency benefits but no adverse effect on fares.

British Airways chief executive Bob Ayling told a news conference that `oneworld' was not a substitute for bilateral links, such as BA's alliance with American which is still seeking regulatory approval.

Other bilateral agreements, such as with JAL of Japan, would continue and other airlines could join later if they wished to. Finnair said it was to join the alliance as soon as practical and the ` oneworld ' partners said they were also talking to Spain's Iberia.

The five members plus franchise and partner airlines will serve 632 destinations in 138 countries. They carried 174 million passengers last year and will have a total of 220,000employees.

``Our customers have told us they want airlines to work together to raise standards of service across the world.` Oneworld' will do just that,'' Ayling said.

The alliance will rival the Star group set up last year which involves United Airlines, Lufthansa, SAS, Air Canada, Varig and Thai Airways.

Qantas chief executive James Strong said `oneworld,' which will start to phase in initiatives from February next year, plans seamless benefits under frequent flyer programmes.

Share prices generally rose on the news, with British Airways up nine pence, or 2.19 per cent, to 422 and Cathay up 30 cents to $HK6.75.

No equity stakes are involved in the alliance, but executives said the deal would boost profitability and efficiency.

``It will not be unfavourable,'' American Airlines chief executive Don Carty told reporters.

``If there are cost saving opportunities we will pursue them. But the biggest opportunity is not in the cost line, it is in the revenue line.''

Not everyone was delighted atthe news, however.

Chairman Richard Branson of BA's bitter rival Virgin Atlantic, said customers would suffer from reduced competition, although the alliance would not threaten Virgin itself.

``From a consumer's point of view, it can't be good news,'' he told Sky News, pointing to the alliance's domination of routes to Australia, for example. ``Instead of `oneworld,' you could say `one company,' '' he said.