Virgin Australia faces opposition from New Zealand airports and city councils to a loosening of conditions on its alliance with Air New Zealand on trans-Tasman routes.
The airlines want the Australian Competition and Consumer Commission to drop orders that require them to retain a certain number of flights on the routes.
But airports and councils claim removing the conditions will lead to the airlines reducing flights in a bid to raise fares. Opponents also want any extension of approval for the alliance limited to three years - not the five years requested by Virgin and its cornerstone shareholder Air New Zealand.
Christchurch Airport said it was "strongly opposed" to the competition regulator giving unconditional approval to the alliance, citing a rise in average fares to the city since the alliance began in early 2011.
While not opposing the tie-up, the airport said there was frustration about a lack of capacity on routes to Christchurch despite a rebound in demand since an earthquake in 2011.
Wellington Airport and the capital city's councils also said it was imperative that conditions remained to prevent the airlines reducing capacity and increasing fares.
"To have their alliance re-authorised without continuation of capacity conditions will have the effect of substantially lessening competition in the trans-Tasman air passenger market between Wellington and Australia," a group representing the airport and councils said in a submission to the regulator.
"The alliance currently finds itself in a position of significant market power and, if permitted to use this power unencumbered, it has the potential to ... restrict capacity and enhance its profitability."
Emirates has previously stated its opposition to a relaxation of the conditions on its rivals.
In seeking a five-year extension to their tie-up from the regulator, Virgin and Air New Zealand have argued the conditions have the "potential to create significant distortions and inefficiencies". They have also argued the conditions should be dropped because, over the past 18 months, they lowered fares by boosting capacity, which prompted responses from Qantas, Jetstar and Emirates.
The two airlines have a combined market share of almost 57 per cent on the trans-Tasman, route compared with about 40 per cent for Qantas, Jetstar and Emirates.