Air New Zealand’s plans for a transtasman alliance with Virgin Blue have been stalled – for now – by the Australian competition watchdog.

In a draft decision released today, the Australian Competition and Consumer Commission (ACCC), proposes to deny authorisation for the alliance, which would see Air New Zealand and Australian low-fare airline Virgin Blue share aircraft, passengers and revenue on transtasman flights.

ACCC chairman Graeme Samuel said the commission considered the alliance was likely to reduce competition on the transtasman route – one of the most competitive airline routes in the world.

It said the two airlines were significant rivals on the route and believed more than one million passengers could be adversely affected if that competition was removed through the alliance. 

Air New Zealand said it was reviewing the decision today and expected to respond to the ACCC’s concerns in the weeks ahead.

The ACCC is seeking submissions on its draft determination by September 24. Approval is also required by the Ministry of Transport.

Plans for the alliance were announced in May, which would see Air New Zealand and Virgin Blue collaborate on future route and product planning, code sharing and frequent flyer programme benefits.

Air New Zealand said the alliance could result in up to 80 more flights across the Tasman each week and between $20-$30 million in annual benefits for the airline, with most of that from carrying more passengers, more stable revenue and a more efficient network, rather than cost savings.

It would also help the airline – 75% owned by taxpayers - compete more effectively against major transtasman rival Qantas and its dual-airline strategy with low fare airline-Jetstar.

Shares in Air New Zealand have fallen 3 cents or 0.8% to $1.25 in trading today, having ranged between $1.46 and $1.02 this year.