New reports now show that Arriva, the UK transport operator, and SNCF, the French state-owned rail operator, have entered into merger talks. This move stands to create a pan-European transport group with revenues of about €6 billion.

These talks come around the same time that European railways are having to follow new competition rules that were introduced on January 1^st. Arriva, which has a strong presence in Europe, confirmed that it was in very early talks with SNCF over a merger of Arriva and all, or part, of Keolis, it’s transportation business.

Right now industry experts believe that SNCF is interested in raising its pan-European presence. This follows the July announcement by French rival Veolia Transport, of plans to merge with Transdev. This merger would create a new group with annual revenue of about €8 billion.

Of course, SNCF’s main competitor across Europe remains Deutsche Bahn, the German state-owned operator. This company has just recently embarked on a quest to run services outside of its domestic market.

Arriva’s mainland European division reported £1.4 billion in revenues for 2008. However, it lacks a significant presence in France to match its operations in other big European countries and Scandinavia. Arriva said, in a statement to the Stock Exchange, the board affirms that discussions are at a preliminary, exploratory stage and that there is no certainty that any agreement will be reached.

This is just yet more proof that companies that are in the travel industry are doing what they can to reach new markets to make up for lost profit. The demand for travel has fallen harshly over the past year and has put a squeeze on the whole travel industry.