Pacific Blue's parent company Virgin Blue and Air New Zealand are seeking regulatory approvals to code share on transtasman flights, and Mr Fyfe was quick to allay fears the move would result in reduced services out of Dunedin.
"Dunedin is a good example of a city that will benefit from this alliance."
Mr Fyfe told the Otago Daily Times the national carrier had been losing money on the transtasman sector, and "Dunedin is one of those that has struggled to keep a viable service".
"By us working together we are far more likely to retain services to Dunedin than working separately."
Air New Zealand was proficient in flying passengers from New Zealand to Australia, and it was a case of vice-versa for Virgin's Pacific Blue, with both airlines able to use the other's strong domestic services in their home country, Mr Fyfe said.
The alliance - if approved - would connect regional centres on both sides of the Tasman, and help passengers wanting to travel to the likes of Dunedin and Queenstown.
The proposal was also likely to result in increased competition in the sector, and cheaper prices from both Queenstown and Dunedin airports, he said.
"We will have to look at fare reductions."
Combined, Air New Zealand and Virgin Blue had 50% of the transtasman market, compared to Qantas and Jetstar with 32%, but their competitors were increasing their market share, he said.
The airlines were likely to retain and try to grow the market, but would not guarantee services, Mr Fyfe said.
Dunedin International Airport chief executive John McCall said he had been contacted by Virgin Blue and Air New Zealand management, who expressed their commitment to the airport.
"Both were extremely positive and supported growth in Dunedin," he said.
The code-share arrangement was likely to "get the attention"of Qantas and Jetstar, and airport representatives planned to speak to both airlines in the coming months.
Queenstown Airport Corporation chief executive Steve Sanderson said the proposal would offer more choices, with Air New Zealand customers able to access the extensive Virgin Blue Australian network.
Aviation Industry Association of New Zealand chief executive Irene King said it would result in "more volume and more connectivity".
Ms King said she expected a strong response from Qantas and its cut-price carrier Jetstar, as "under a duopoly the other party responds pretty quickly".
"I think we will see very strong competition throughout the country."
Tourism New Zealand chief executive Kevin Bowler, who was in Dunedin yesterday, welcomed the move, as it would provide more access to both transtasman markers.
Virgin Blue chief executive Brett Godfrey said passengers could expect cheaper and more frequent flights, and increased competition across the Tasman.
Both Virgin Blue and Air New Zealand are expected to file applications with the Ministry of Transport, in New Zealand, and the Competition and Consumer Commission, in Australia, with regulators expected to review the case within six months.
