Australia's competition regulator blocked an alliance between Virgin Blue and Air New Zealand on flights between Australia and New Zealand, dealing a blow to Virgin Blue and sending its shares sharply lower.
The tie-up was seen as "likely to reduce competition in the market for trans-Tasman air passenger services," the Australian Competition & Consumer Commission said in a draft ruling on Friday.
The rejection is the second regulatory blow to Virgin Blue this week after the US Department of Transportation rejected in a preliminary ruling its proposed joint venture with Delta Air Lines on flights between Australia and the United States.
The alliance, proposed in May, included plans to co-ordinate pricing, revenue, schedules and routes, as the two carriers looked to strengthen their positions on the strongly competitive routes.
"Air New Zealand is currently reviewing the draft decision and expects to respond to the ACCC's concerns once they are identified," Air NZ said in a statement.
The two airlines had said the alliance would allow them to compete more effectively with Australian carrier Qantas, which flies between the two countries under its own name and also as budget carrier Jetstar.
The ACCC said the proposed alliance would bring cost savings and efficiencies, but it was not convinced about the magnitude, nor was it convinced more competition would result.
However, it said more than a million passengers a year might be adversely affected.
The alliance would not have included domestic services in either country or services in the Pacific. Last month Virgin Blue said it would pull out of the New Zealand domestic market to strengthen its trans-Tasman, Pacific and Asian networks.
Eleven airlines currently fly between New Zealand and Australia. Air NZ has around 38 percent share, Qantas and Jetstar about 32 percent, and Virgin's Pacific Blue 18 percent.
*Reuters