The consumer watchdog is seeking to block an extension deal between Qantas and China Eastern Airlines that could increase airfares for passengers flying between Australia and China.
The two carriers attempted to finalise an agreement that would allow them to co-ordinate passenger and transport operations between Australia and China until March 2024.
But the Australian Competition and Consumer Commission has issued a draft determination to block the deal.
ACCC commissioner Anna Brakey said the deal could breach competition laws.
"We are concerned that the authorisation would provide Qantas and China Eastern with the opportunity and incentive to increase prices ... by limiting or delaying the introduction of additional capacity on the Sydney-Shanghai route as passenger demand continues to grow," she said in a statement on Friday.
"At this stage we are not satisfied that the likely harm to competition from Qantas and China Eastern’s proposed coordination would be outweighed by any potential benefits."
China Eastern is the only airline with direct flights between Sydney and Shanghai, while Qantas was expected to resume flights in October.
The watchdog believes demand for flights between Australia and China will likely grow thanks to Tourism Australia's recent campaign.
The ACCC granted interim authorisation for the carriers to co-ordinate their operation in March 2023 but remains unconvinced an extension of this deal would "lead to additional services on other routes between Australia and China".
Qantas and China Eastern have until October 6 to respond before the ACCC makes its final decision.
The decision comes after the Australian carrier came under scrutiny for its role in the government's decision to block Qatar Airways' bid to double its Australian routes.
