Australia's competition watchdog on Friday reversed a draft decision against a joint venture between Qantas and China Eastern, giving the carriers the green light to coordinate pricing and scheduling.
The Australian Competition and Consumer Commission (ACCC) said in March the original proposal between the airlines would harm competition.
But the regulator said Friday that China Eastern had since agreed to increase the frequencies of its services between Australia and China and introduce a new route if the deal was allowed.
Qantas and China Eastern will also expand the destinations covered by their existing codeshare agreement as they seek to establish a gateway through China Eastern's Shanghai hub for connecting services between the countries.
"The ACCC considers that the addition of a significant number of new services and expanded range of destinations, reflecting this gateway strategy, would constitute a significant public benefit," ACCC chairman Rod Sims said.
The approval requires Qantas and China Eastern to grow their capacity on routes between Australia and Shanghai by 21 percent over the five-year term of the authorisation.
China is a source of significant tourism for Australia and China Eastern chairman Liu Shaoyong said the carrier would look to grow this further following the ACCC's decision.
The two airlines already have a reciprocal codeshare agreement on 17 flights a week between Australia and mainland China, plus a number of onward domestic destinations in both countries.