Plans to form a joint venture of the skies was thwarted in order to protect competition on trans-Tasman routes.

The Australian Competition and Consumer Commission (ACCC) disclosed that it will block Virgin Blue's planned alliance with Air New Zealand. ACCC chairman Graeme Samuel considers the planned alliance as a threat to a healthy competition among airlines.

The regulating body chair said, “The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services” because it believes “Virgin Blue is a significant competitor to Air New Zealand and there are a number of trans-Tasman routes where the alliance raises competition concerns.”

Under the planned joint undertaking, the two airlines would take a co-ordinated approach towards pricing, revenue management, schedules, capacity, and routes flown.

Samuel explained that “these routes account for around one quarter of passenger traffic in the trans-Tasman market. This means that more than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand.”

The temporary decision would be the second rejection of Virgin Blue's attempts to joint forces with other airline companies. On Thursday, US authorities blocked a planned joint venture on flights between Australia and the US between Virgin Blue's V Australia arm and Delta Air Lines.

A final decision is pending until after the ACCC has thoroughly discussed with Virgin Blue and Air New Zealand. Both airlines were invited to provide further information to support the claimed benefits of the tie up.