QANTAS has scored a win for its plans to overhaul its international flying operations after the competition regulator gave tentative approval for an extensive alliance with Emirates.
But the regulator intends to knock back the two airlines' request for competition approval to be granted for 10 years, deciding half that time is more appropriate.
In a draft ruling, the Australian Competition and Consumer Commission has proposed granting approval to the airlines to co-operate on passenger and freight operations because it was likely to lead to "material, although not substantial" benefits to consumers.
Apart from gaining limited approval to five years, Qantas and Emirates will also be made to live up to their promise not to reduce overall capacity on the Australia-New Zealand route.
The deal still needs final approval from the ACCC but chairman Rod Sims said opponents would have "to come up with something we haven't heard before" to make the regulator change its mind.
"This isn't a merger - this is a five-year agreement," Mr Sims said. "If things go as we expect, and as Qantas tells us that they expect, there shouldn't be any problem extending it [once] the initial five-year period ends."
The regulator accepts that competition from other airlines such as Chinese and Middle Eastern carriers is strong enough to discourage Qantas and Emirates from lifting fares on routes to Europe and Asia.
"When we looked at each of the routes, [the trans-Tasman] was the main concern we had with the deal," Mr Sims said.
The regulator believed the main benefit to consumers was an improved product and service by the two airlines, including better access to each others' flights, destinations and frequent-flyer programs.
A final decision from the ACCC on the alliance is expected in March.
The deal covers routes from Australia to Europe, North Africa, the Middle East, Asia and New Zealand.
It will also result in Qantas shifting its hub for European flights from Singapore to Emirates' base in Dubai.
Aspects of the deal still need approval from regulators in New Zealand and Singapore.
New Zealand Transport Minister Gerry Brownlee will also decide whether the two airlines can extend their alliance to the trans-Tasman route.
CBA Equities analyst Matt Crowe said investors had expected the Australian regulator's draft ruling to be in favour of an airline alliance because it was a "very competitive industry".
Mr Crowe said it had probably been "a bit of wishful thinking" on the part of Qantas and Emirates to expect the regulator to grant approval for 10 years.
Qantas chief executive Alan Joyce said the airlines had put a strong case to the competition regulator outlining the benefits of an alliance.
"We will now focus on responding to the issue raised by the ACCC in relation to the trans-Tasman as we move to securing final approval of this landmark partnership," Mr Joyce said.