Australia's competition watchdog has given Virgin Blue and Delta Air Lines permission to form a joint venture to operate trans-Pacific flights.
"Under the joint venture, the airlines would take a coordinated approach to a range of issues including pricing, revenue management, schedules, capacity and routes flown," says the Australian Competition and Consumer Commission.
"The entry of Virgin Blue and Delta on the trans-Pacific routes has created strong competition on price and service in the market for passenger transport. The ACCC expects that this would continue to be the case under the new arrangements to the benefit of consumers," says the ACCC's chairman Graeme Samuel.
The move would allow Delta and Virgin's long-haul subsidiary V Australia to break the dominance on trans-Pacific routes held by Australian national carrier Qantas Airways and United Airlines.
V Australia began flying between Sydney and Los Angeles in February, and Delta followed in June. V Australia has since expanded the services to fly out of Brisbane, and will begin flights out of Melbourne by end-2009.
Approving the joint venture, says the ACCC, will allow Virgin Blue and Delta to "compete more effectively" against the incumbents on the routes.
The commission adds that it "recognises that the extent to which these benefits are realised will depend largely on the conduct of the parties under the joint venture", and that it would therefore give the carriers authorisation for only three years initially.
Delta and Virgin Blue welcome the decision, saying it would allow them to offer "seamless, integrated travel between cities throughout the Australian and US domestic markets", help to maintain their existing trans-Pacific scheduling and introduce new direct routes.
"The proposed alliance will allow the carriers to provide an enhanced service and develop future services and routes, through collaboration on route and product planning, codesharing on their respective networks and the extension of frequent flyer program benefits and lounge access to customers of both airlines," they add.
They must now wait for the US Department of Transportation to rule on their application before proceeding with their joint venture.