QANTAS has scored a major boost to its plans to overhaul its international flying operations after the competition regulator gave tentative approval to an extensive alliance with Emirates.
But the regulator intends to knock back the two airlines' request for anti-trust approval to be granted for 10 years, deciding half that time-frame 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 across their networks because it was likely to lead to "material, although not substantial" benefits to consumers.
As well as limiting approval to five years, Qantas and Emirates will be made to live up to their promise not to reduce overall capacity on routes between Australia and New Zealand.
The deal still needs final approval from the ACCC but its chairman, Rod Sims, said opponents would have "to come up with something we haven't heard before" to convince the regulator to change its mind.
"This isn't a merger - this is a five-year agreement. 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," he said.
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. "[But] Qantas and Emirates face just so much competition [on the other routes]."
The regulator believed the main benefit to consumers was an improved product and service offering by the two airlines, which included better access to each others' flights, destinations and frequent flyer programs.
A final decision from the ACCC on the alliance is expected in March.
Qantas also confirmed on Thursday that it had reapplied for interim approval for the alliance which, if granted, would allow it to talk with Emirates about pricing and flight capacity while it awaits a final decision from the ACCC. 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's base in Dubai.
Aspects of the deal still needs approval from regulators in New Zealand and Singapore. New Zealand's Transport Minister, Gerry Brownlee, will also decide whether the two airlines can extend their alliance to the trans-Tasman route.
A CBA Equities analyst, Matt Crowe, said investors had expected the Australian regulator's draft ruling to be in favour because it was a "very competitive industry".
Mr Crowe said it had probably been a "bit of wishful thinking" to expect the regulator to grant approval for 10 years.
The chief executive of Qantas, Alan Joyce, said the airlines put a strong case to the competition regulator that outlined the benefits of the 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," he said.