Air New Zealand has been given the go-ahead by Australian regulators for a transtasman alliance with Virgin Blue which it says will benefit customers.

The proposed alliance includes agreements on a code-share for the Tasman and domestic travel as part of a connecting journey, revenue allocation, frequent flyer and lounge access.

The Australian Competition and Consumer Commission (ACCC) in September issued a draft determination proposing to deny authorisation.

But yesterday, it gave approval to the airlines for three years.

ACCC chairman Graeme Samuel said the alliance was likely to benefit passengers by giving more choice of routes, frequencies and possibly lower fares from cost savings.

"The ACCC is still concerned that the alliance may affect competition on routes between Australia and New Zealand, particularly routes involving Wellington," Mr Samuel said.

"However, the ACCC has imposed conditions on authorisation which are designed to address these competition concerns."

The conditions require the airlines to maintain and increase the number of seats on routes for which competition issues were identified, and are intended to restrict the ability of the alliance to raise fares on those routes by limiting capacity.

Forsyth Barr head of research Rob Mercer said the alliance would be a substantial public benefit in Australia.

"It's up to them to prove in the next three years that there is ... and it's only the first leg of what needs to be done because obviously we've got to wait for the [New Zealand] Minister of Transport to approve it as well," Mr Mercer said.

Some parties had moved from opposing to supporting the alliance, he said.

There should also be benefits for the New Zealand traveller, Mr Mercer said.

"I think ultimately that if they could do a strengthened service between the two, it would help broaden the range and frequency of routes between New Zealand and Australia."

Air New Zealand chief executive Rob Fyfe said he hoped for a decision from the Minister of Transport on the alliance by the end of this week.

In May he said the alliance would bring $20 million to $30 million a year to Air New Zealand, mostly from carrying more passengers.

Shares in NZX-listed Air New Zealand, which is 74.7 per cent government-owned, closed up 2c yesterday at $1.45.