Australia's competition watchdog gave conditional approval to an alliance between struggling national flag carrier Qantas Airways and Dubai's Emirates, but approved it for only five years, not 10 as had been sought.
The Australian Competition and Consumer Commission said the main benefit from the alliance was increased customer access to each others' flights, destinations and loyalty programs.
The regulator also said it would restrict the alliance on routes between Australia and New Zealand due to concerns it may have an increased ability and incentive to reduce or limit growth in capacity to raise airfares.
"Given the dynamic nature of the aviation industry, the limited extent of public benefits and the significant role of the trans-Tasman capacity condition in the ACCC's decision, the ACCC considers it appropriate to review this authorisation earlier than the 10 years requested by Qantas and Emirates," ACCC Chairman Rod Sims said in a statement on Thursday.
"The alliance is likely to result in material, although not substantial, benefits to Australian consumers," he said.
The Qantas-Dubai tie-up, which will see the pair coordinate pricing, sales and schedules, has been welcomed by the government, airports and tourism organizations.
But rival Virgin Australia, which operates its own alliance with Etihad, has argued the deal was too broad and would entrench Qantas' dominant position in the domestic and corporate market to the detriment of Australian passengers. Virgin also contended a 10-year alliance was too long and any effects should be tested over a shorter period of time.
Qantas announced the Emirates deal in September, ending its 17-year alliance with British Airways, owned by IAG, which some analysts have suggested could seek a new partner such as Qatar Airways.
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The arrangement, which includes switching the airline's hub to Dubai from Singapore for European flights, will enable Qantas to cut loss-making international routes and focus on its profitable domestic and budget operations.
The alliance is deeper than a straightforward code-share arrangement -- where airlines share some flights -- but stops short of a global revenue-sharing deal or equity injection from either side.
Qantas has been stripping costs out of its business after a year troubled by a record fuel bill, rising competition and a labor union that has opposed the carrier's spending cuts.
Analysts have suggested the alliance could save Qantas A$90-100 million before taxes annually. The airline has yet to reveal its own estimates for cost savings.
Emirates, meanwhile, is looking to increase its business in Australia to counter moves by Etihad and Qatar. Etihad doubled its stake in Qantas rival Virgin Australia to 10 percent last month and Qatar Airways launched its first service to Perth this month, saying that it also wanted to partner with Australian carriers.