The Australian Competition and Consumer Commission (ACCC) yesterday conditionally approved for three years a proposal under which the airlines would co-ordinate a range of issues including pricing, revenue management, schedules, capacity and routes.
In September, the ACCC issued a draft determination proposing to deny authorisation for the alliance, but yesterday it said it had since received a substantial amount of information from the applicants and interested parties about the likely public benefits and detriments.
It was now satisfied the identified public benefits, in combination with the conditions being imposed, were likely to outweigh any public detriment from the alliance, the ACCC said.
But the conditional authorisation was for only three years, rather than the five years sought.
Air New Zealand chief executive Rob Fyfe said he was pleased formal approval had been given, recognising the benefits the alliance would bring to the company's customers.
"I would like to thank the ACCC for its thorough consideration of the issues and coming to a determination that favours customers and will see the Tasman market continue to grow."
A decision on the alliance application from Mr Joyce was expected within the next few days, he said.
Forsyth Barr broker Peter Young said the ACCC authorisation completed the first leg.
"We now await the ruling from the Ministry of Transport, which is reviewing the merits of the alliance from New Zealand's perspective."
Under the alliance, the airlines would take a co-ordinated approach to a range of issues, including pricing, revenue management, schedules, capacity and routes flown.
The ACCC imposed several conditions on the alliance with respect to some of the more sensitive routes, such as Wellington.
"We believe the alliance will greatly enhance the competitive position of Virgin Blue and Air NZ routes with respect to Qantas - particularly in the sourcing of travellers out of the Australian domestic market, which has been heavily dominated by Qantas."
The alliance would bring more value to Virgin Blue and should help restore its financial performance in the Australian domestic market, he said.
For Air NZ, it added "half a tick in the box" across a wide number of initiatives being implemented, Mr Young said.
Previously Mr Fyfe had said the ACCC's September draft decision would threaten Air New Zealand's future.
"If we are to earn the right to continue to fly and grow, then the deal with Virgin Blue is a central plank of that strategy," he said said at the time.
The ACCC's preliminary finding was "in effect, a threat to our future".
Yesterday, ACCC chairman Graeme Samuel said the regulator considered the alliance was likely to benefit passengers in such areas as route choice and frequencies, and potentially lower fares as a result of cost savings and efficiency improvements.
"The ACCC is still concerned that the alliance may affect competition on a number of routes between Australia and New Zealand, particularly routes involving Wellington," Mr Samuel said.
"However, the ACCC has imposed a number of conditions on authorisation which are designed to address these competition concerns."
Broadly speaking, the conditions required the airlines to maintain and increase the number of seats flown on routes where the ACCC had identified competition issues. This was intended to restrict the ability of the alliance to raise fares on these routes by limiting capacity.
Air New Zealand shares were up 5c to $1.48, but slipped back to $1.45 as investors realised it was only the first leg of the approval.
