Virgin Blue and Etihad Airways have won regulatory approval an international alliance, which will see the Australian carrier build a hub in Abu Dhabi.

Under the terms of the deal the airlines have agreed to cooperate on joint pricing and scheduling of services across their networks, with the Australian Competition and Consumer Commission granting authorisation for five years.

Virgin Blue and Etihad will not share revenue under the alliance.

“The ACCC considers that the alliance is likely to promote competition and result in new international services, in particular between Australia and Abu Dhabi with onward connections to Europe,” ACCC chairman Graeme Samuel said.

Given the airlines do not currently compete on any routes, the ACCC considers the alliance is unlikely to result in any anti-competitive detriments.

Authorisation provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010.

The decision is particularly important for Virgin Blue, which is seeking to bolster its position against the emerging Jetstar.

Asia Pacific’s largest low-cost carrier, a subsidiary of Qantas, presently flies to 56 destinations in 14 countries.

Etihad has grown to become the leading carrier in the Middle East

“The Etihad partnership will see us establishing an international hub in Abu Dhabi,” said Virgin Blue chief executive John Borghetti.

“This will allow us to offer corporate and leisure travellers a very attractive one-stop alternative to more than 14 destinations in Europe, plus the Middle East and Africa without backtracking or going via Heathrow.

“Guests will also enjoy mutual frequent flyer earn and redemption capability and a global frequent flyer program.”

Virgin Blue Group’s partnership with Etihad Airways delivers a combined global network of more than 100 destinations worldwide.

V Australia will commence direct services from Sydney to Abu Dhabi three times per week in February 2011 and three Brisbane-Abu Dhabi services per week by February 2012.

Both airlines have recently been recognised by the World Travel Awards, with Virgin Blue scooping the title of Australasia’s Leading Airline in 2010, while Etihad took the coveted title of World’s Leading Airline.