SYDNEY - Australia's competition watchdog on Thursday gave its preliminary approval to a global alliance between struggling carrier Qantas and Dubai-based Emirates, but only for five years initially.
The Australian Competition and Consumer Commission (ACCC) said the benefits, which will see the airlines coordinate ticket prices and flight schedules, would likely outweigh reduced competition on certain routes.
A final decision will be made by March.
"The ACCC considers that the alliance is likely to result in material, although not substantial, benefits to Australian consumers," ACCC chairman Rod Sims said in a statement to the Australian Stock Exchange.
"The main benefit arising from the alliance is an improved product and service offering by the two airlines to their customers.
"This includes increased customer access to each others' flights, destinations and frequent flyer programmes."
Sims added that the alliance, seen as pivotal to the future of Qantas, would lessen competition on some international routes, but competition from other airlines should mitigate the impact.
However, he said Qantas and Emirates could reduce or limit capacity on routes between Australia and New Zealand under the partnership, which could result in higher airfares.
It was for this reason that the ACCC only gave an initial five-year approval, half the 10 years requested by the airlines. The decision would then be reviewed.
Under the alliance, Qantas will shift its hub for European flights to Dubai from Singapore in a bid to stem losses after this year posting its first annual deficit since privatisation in 1995.
It also means an end to Qantas's partnership with British Airways on the so-called kangaroo route to London, which has spanned nearly two decades.
Once final approval is granted, Qantas will fly daily A380 services from Sydney and Melbourne to London via Dubai, meaning that between the two airlines there will be 98 weekly services between Australia and the Emirates hub.
As a consequence, Qantas flights to Singapore and Hong Kong will terminate in those cities and be rescheduled to enable more same-day connections across Asia.
For Emirates customers, the alliance opens up Qantas's Australian domestic network of more than 50 destinations and nearly 5,000 flights per week.
The deal goes beyond codesharing to include coordinated pricing, sales and scheduling and a benefit-sharing model, although neither airline will take equity in the other.
"We put a strong case to the ACCC that outlined the benefits of this partnership, both for travellers and for Australian tourism, " Qantas chief Alan Joyce said.
"Our customer research has shown very strong support for the Qantas and Emirates partnership, particularly in terms of increasing one-stop access to Europe, cutting travel time and offering frequent flyer benefits."
Emirates president Tim Clark said his customers had also broadly welcomed the hook-up since it was first announced in September, which "reinforces what a strong match the two brands are for each other".
Since announcing the partnership, the carriers have begun initial preparations, including connecting IT systems and establishing an operational base for Qantas in Dubai.
Transport Minister Anthony Albanese said the tie-up was good for passengers and provided "the opportunity for Qantas to invest in additional aircraft capacity and international services, especially to meet the growth in Asia".