Australia's competition regulator has approved a proposed trans-Tasman alliance between Air New Zealand (ANZ) and Virgin Blue.
The Australian Competition and Consumer Commission (ACCC) says it has granted "conditional authorisation" for three years to the carriers, which plan to work together on revenue sharing, pricing, schedules and route planning.
In September, the ACCC said it intends to reject the alliance, expressing concerns that the alliance will likely reduce competition in the trans-Tasman market.
But since then, it has received a "substantial amount of information from the applicants and interested parties about the likely public benefits and detriments".
"The ACCC is now satisfied that the identified public benefits, in combination with the conditions of authorisation, are likely to be sufficient to outweigh any public detriment arising from the alliance," it adds.
However, the regulator has placed conditions on the authorisation which will address competition concerns, it says.
"The conditions require the airlines to maintain and grow the number of seats flown on the routes where the ACCC has identified competition issues. The conditions are intended to restrict the ability of the alliance to raise fares on these routes by limiting its capacity," it adds.
ANZ and Virgin Blue had earlier sought an authorisation lasting five years, but the ACCC has granted a three-year authorisation ending 31 December 2013.
"Given the significant role of the authorisation conditions in the balance of benefits and detriments, the ACCC considers it appropriate to review developments earlier," it says.
Responding to the ACCC's decision, ANZ's CEO Rob Fyfe says: "I'm pleased that formal approval has been given recognising the benefits this will bring to our customers."
The airline says it expects a decision on the alliance application to the New Zealand transport minister within the next few days.