The consumer watchdog has approved a joint venture between Qantas and China Eastern airlines after initially refusing the partnership.
The Australian Competition and Consumer Commission released a draft determination earlier in the year rejecting coordinated services due to fears the airlines would be motivated to limit capacity and increase fares.
However, the proposal has been given the go ahead with strict conditions including a commitment for the airlines to grow their capacity on routes between Australia and Shanghai by 21 per cent over five years.
Qantas Group chief executive Alan Joyce welcomed the decision.
"We put a strong case to the ACCC that outlined the benefits of this partnership for travellers as well as Australian tourism and trade," he said.
"The joint venture with China Eastern allows us to increase capacity between the two countries by linking to key hubs and offer connectivity to each carriers behind and beyond networks."
Passengers are set to benefit from Qantas now sharing China Eastern's terminal in Shanghai which could shave off hours on layovers and open up new connecting flights within China.
Despite the outlined benefits and imposed conditions, the ACCC remained unconvinced passengers would be completely better off under the alliance due to the duopoly China Eastern and Qantas have over the Sydney to Shanghai route.
"Qantas and China Eastern are the two major airlines operating services on the route, the only airlines offering daily flights and the major competitive constraint on each other," said Mr Sims.
The consumer watchdog warned of decreased competition for services between the cities could lead to airlines hiking up prices.
"It is not uncommon for airlines to charge higher fares for passengers on a point to point route, where competition is limited, than for passengers travelling on the same flight who have an onward connection to a destination that is serviced by a variety of carriers," said Mr Sims.
To offset potential price increases, the airlines are required to report average fares every month on each route between China and Australia to the consumer watchdog.
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