Australia's Qantas Airways has won a conditional approval from the country's competition watchdog for its alliance with Emirates to collaborate on pricing, sales and flight scheduling over the next five years.
Nevertheless, the Australian Competition & Consumer Commission dismissed Qantas management's claim that its international operations face "terminal decline" without an alliance with Emirates.
The ACCC approval also required that the airlines to maintain existing capacity on four overlapping trans-Tasman routes such as Sydney-Auckland, Melbourne-Auckland, Brisbane-Auckland and Sydney-Christchurch.
"On these routes, the ACCC is concerned that Qantas and Emirates will have the ability and incentive to reduce or limit growth in capacity in order to raise airfares," ACCC Chairman Rod Sims said in a statement.
They accounted for about 65 percent of total passenger capacity between Australia and New Zealand in the year to 30 June 2012.
Though the airlines wanted to be in an alliance for 10 years, the regulator granted approval for the deal only until 2018, when it will review the partnership.
In an attempt to turn around its loss-making international operations, the Australian carrier agreed the alliance with Emirates last year. Qantas' international operations were severely affected by sluggish demand from key markets, increased competition and sky-high fuel costs.
The airline has taken various measures to recover its international business including flight cancellations, job cuts and restructuring maintenance operations. On the back of the efforts, the losses at the international division were narrowed to A$91m ($95m; £63m) in the six months to the end of December, from A$262m a year earlier.
The alliance with Emirates, the UAE's flagship carrier, is expected to help Qantas further with more cost reductions and more profitable routes.
Emirates operates flights to more than 70 destinations in Europe, and the partnership is expected to help Qantas' customers flying to those destinations, as the airline plans to stop flights to European cities such as Frankfurt. Further, the alliance will shift Qantas' hub for European flights to Dubai from Singapore. The first Qantas flight to London via Dubai is due on 31 March.
"Qantas is an Australian icon and the future of its international business is much brighter with this partnership," said Qantas CEO Alan Joyce.
"Customers are already responding very strongly to the joint network that Qantas and Emirates have built, and to the frequent flyer benefits that extend across it, with a significant increase in bookings."
The alliance will help connect Australian consumers to major markets, according to Tim Clark, President of Emirates.
"Dubai is a leading global hub and through it, our two airlines will connect Australia to Europe, the UK and Northern Africa more smoothly than ever before," he said.