The competition watchdog is proposing to approve an alliance between Qantas and Emirates.
The Australian Competition and Consumer Commission has issued a draft decision authorising the alliance for five years - half the period the airlines requested.
The ACCC's chairman Rod Sims says the shorter period is due to the limited benefits to consumers that will arise from the alliance.
"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 ACCCâs decision, the ACCC considers it appropriate to review this authorisation earlier than the 10 years requested by Qantas and Emirates," he noted in a statement.
However, Mr Sims says the benefits of the alliance to consumers, while not substantial, are still likely to outweigh less competition on a few routes.
"The main benefit arising from the alliance is an improved product and service offering by the two airlines to their customers," he explained.
"This includes increased customer access to each others' flights, destinations and frequent flyer programs.
"The alliance is likely to result in some public detriments through its effect on competition where Qantas and Emirates currently offer overlapping services.
"In most of these regions, there are factors which are likely to mitigate the public detriment, including continuing competition from a number of established airlines." The ACCC is concerned about the reduction of competition on overlapping trans-Tasman routes currently operated by the two airlines, and is proposing a condition to restrict the ability of the airlines to reduce or limit capacity on these routes in order to lift airfares.
"What we've done is said is that on various routes - the most popular routes really between Australia and New Zealand - there's actually three players on those routes: Qantas, Emirates separately, and [Air] New Zealand with its partner Virgin," Mr Sims told the ABC's The World Today program.
"What we're saying is that Qantas and Emirates must maintain the capacity they have on those routes now." Authorisation for the deal provides immunity from potential prosecution for alliance behaviour that might otherwise contravene provisions of the Competition and Consumer Act.
Decision welcomed Qantas has welcomed the draft decision, with its chief executive Alan Joyce saying the airline had put forward a strong case for approving the alliance.
"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," he said in a statement.
"We will now focus on responding to the issue raised by the ACCC in relation to the trans-Tasman as we move to securing final approval of this landmark partnership." Qantas says it has already started work with Emirates to make initial preparations for the alliance that did not need regulatory approval, such as connecting their IT systems, designing frequent flyer benefits and establishing a Qantas operational base in Dubai.
The ACCC is inviting comments from interested parties before making its final decision, which is expected in March.
Qantas and Emirates are planning to commence their partnership in April next year.