UPDATE 1- Air France, Veolia in rail alliance talks - papers

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PARIS, July 4 (Reuters) - Air France-KLM (AIRF.PA: Quote, Profile, Research) and Veolia Transport (VIE.PA: Quote, Profile, Research) are discussing a high-speed rail alliance, French and British newspapers reported on Friday.

Veolia Transport, part of French water utility Veolia Environnement, could run trains under the Air France brand from the airline's hub at Paris Charles de Gaulle airport to destinations across Europe, the Financial Times said.

According to Les Echos and the Financial Times, Air France confirmed a report in French magazine La Vie du rail International which said the airline had been exploring for four years the possibility of using rail to complement its air services. The Financial Times also said Veolia had confirmed it was in talks with Air France.

Separately, Les Echos and La Tribune said Air France-KLM could reduce its capacity for next winter in the face of surging oil prices.

"Air France-KLM has revised downwards its offering for the winter season due to fuel costs," Les Echos cited an Air France- KLM spokeswoman as saying.

Air France-KLM and Veolia were not immediately available to comment.

(Reporting by Dominique Vidalon; Editing by Will Waterman)