The competition regulator has expressed concerns about Virgin Australia's plan to take over Tiger Airways Australia.
The Australian Competition and Consumer Commission is now seeking comment on competition issues arising from Virgin's plan to take a 60 per cent stake in Tiger Australia.
The regulator says the deal could reduce competition by cutting out a third major player in Australia's domestic air travel market, as well as by removing an independently owned low-cost airline from the market.
However, the ACCC's chairman Rod Sims says such low prices on domestic airfares for leisure travellers may not last much longer anyway.
"I think you'd have to say there would be increases in airfares particularly at the leisure end - the price-sensitive leisure end of the market - but the question is: are those low prices going to continue anyway, given the fact that Tiger is losing so much money?" he asked rhetorically.
Mr Sims says the risk that Tiger could exit the market if the deal does not go ahead will also influence the regulator's decision.
"While we have concerns obviously with three going to two, we do acknowledge Tiger's a small player, and we do acknowledge that there are issues over its future viability," he said.
"If Virgin were to take over Tiger and boost its capacity, that may well have some positive effects." The ACCC now expects to make its final ruling in mid-March.