Australia’s competition watchdog yesterday conditionally approved a tie-up between local carrier Virgin Blue and Air New Zealand on routes between the two anti-podean nations.

The Australian Competition and Consumer Commission will permit the two carriers to coordinate pricing, revenue management, schedules, capacity and routes in an agreement that will apply for three years.

The watchdog said it had given a conditional green light to the tie-up on the lucrative Australia-New Zealand route after earlier objections had been overcome, but stressed that some competition concerns remained.

“The ACCC considers that the alliance is likely to benefit passengers in a number of ways including more choice of routes and frequencies, and potentially lower fares as a result of cost savings and efficiency improvements,” ACCC chairman Graeme Samuel said in a statement.

But Mr Samuel voiced lingering concern over the effect of the alliance on competition on a number of key routes. “The ACCC is still concerned that the alliance may affect competition on a number of routes between Australia and New Zealand, particularly routes to the New Zealand capital Wellington.

“However, the ACCC has imposed a number of conditions on authorisation which are designed to address these competition concerns,” said Mr Samuel. The airlines will be required to maintain and increase the number of seats available on the routes where the watchdog has concerns, in order to restrict the carriers’ ability to hike fares by reducing capacity.

In September the ACCC indicated it was considering denying authorisation for the tie-up, which the two carriers first announced in May, but it had since received much more information from the airlines.

“The ACCC is now satisfied that the identified public benefits, in combination with the conditions of authorisation, are likely to be sufficient to outweigh any public detriment arising from the alliance,” it said.

Authorisation for the tie-up between Virgin Blue, originally set up by British entrepreneur Richard Branson, and Air New Zealand will last until December 31, 2013, less than the five years the carriers had been seeking. In a related move, the ACCC also proposed granting authorisation for an alliance between Virgin Blue and Abu Dhabi carrier Etihad, in which the two airlines will cooperate on pricing and the scheduling of services.