Regulator knocks back Air NZ alliance bid

Australia's antitrust regulator has knocked back a bid from Air New Zealand and Virgin Blue to forge an alliance on trans-Tasman routes.

In a draft determination, the Australian Competition & Consumer Commission said the alliance would probably boost the likelihood of coordinated conduct on routes between New Zealand and Australia with Virgin's Pacific Blue reining in its services.

"The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services," chairman Graeme Samuel said in a statement.

"More than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand."

The airlines put forward the bid in May in response to Qantas Airways two-airline strategy where its low-fare Jetstar unit operates domestically in New Zealand and links to longer-haul flights on its parent. The tie-up required regulatory approval from the ACCC and New Zealand's Ministry of Transport.

Air NZ said it's reviewing the draft decision and will respond to the ACCC's concerns once they are identified.

Shares in New Zealand's national carrier fell 0.8 per cent to $1.25 in trading today, while Virgin Blue's stock sank 7 per cent to 40 Australian cents on the ASX.