The competition watchdog has rejected a central argument from Qantas management that its international operations face "terminal decline" without an alliance with Emirates.
But the regulator has granted final approval for the alliance after deciding that stiff competition from other airlines on the routes to Europe will prevent higher fares or other negative impacts on passengers.
The airlines are now free to launch their alliance as planned on Sunday, which is mostly focused on routes to Europe via Dubai but includes routes to North Africa, Asia and New Zealand. In granting them approval for five years, the Australian Competition and Consumer Commission has also forced the airlines to keep capacity on four overlapping trans-Tasman routes at their existing levels.
The approval had been widely expected but not the regulator's dismissal of Qantas' claims that without the Emirates alliance its international flying operations were in terminal decline.
The performance of Qantas' international operations has long been a point of contention in the war of words between Qantas boss Alan Joyce and trade unions and the federal independent senator Nick Xenophon.
ACCC chairman Rod Sims said he did not accept the "terminal decline" argument.
"They're still going to fly to Asia, and they are still going to fly to America and South America," he said. "We never accepted that they were going to get out of international aviation."
Despite rejecting the claim, Mr Sims said he approved the deal because of the "extremely competitive" nature of the international airline industry. "So if it's extremely competitive we don't see any competitive detriment, therefore the material but not substantial benefits trump the detriments, so we can approve the deal," he said.
But Transport Workers Union boss Tony Sheldon said the ACCC had failed to fully address the negative impact of the deal because it did not take into account the wider impact on jobs, the economy or national security. The TWU, which represents Qantas ground staff, is considering a legal challenge to the ACCC approval.
Senator Xenophon called on Mr Joyce to come clean about the state of the airline's international division.
Qantas has claimed a higher labour bill puts it at a disadvantage to airlines in the Middle East and Asia. But in its report granting approval, the regulator said it did not accept the extent of the disadvantage.
It considered confidential board documents and route profitability data, as well as reports provided by Qantas from Boston Consulting and Oxford Economics.
The ACCC accepted Qantas was likely to cut services to Europe with or without the Emirates alliance but said "in all other areas" of its international operations any disadvantages were likely to be offset by its grip on the domestic market and the loyalty of frequent flyers and corporates. It also did not place any weight on Qantas' claims of "structural disadvantage" due to government ownership and different tax treatment for other airlines.
The Qantas -Emirates deal
Qantas flights from Melbourne and Sydney to London to go via Dubai.
Qantas to codeshare on Emirates services out of Australia to Europe, the Middle East, Asia and North Africa.
No equity investment by either airline.
Qantas and Emirates to co-ordinate trans-Tasman services (subject to approval from
Qantas frequent flyer points earned on Emirates flights.
Alliance approved for five years.