The U.S. Transportation Department (DOT) reversed course May 10 and tentatively approved antitrust immunity for Delta Air Lines and Virgin Australia Group affiliates for U.S.-Australia services.

Virgin Australia Group, known until a week ago as the Virgin Blue Group, includes V Australia, Virgin Blue and Pacific Blue Airlines affiliates in both Australia and New Zealand. Delta and Virgin Blue already are code-sharing, but the immunity for their joint venture would let them collaborate on network planning, distribution and fares. Frequent flyer reciprocity is being planned.

The immunized alliance would have about a 20% share of the U.S.-Australia/New Zealand nonstop market by share of passengers, compared to about 40% apiece for Qantas and United/Air New Zealand, based on DOT-calculated figures for 2010.

Delta serves a single point in Australia—Sydney—and Virgin Australia's international airline, V Australia, flies only to Los Angeles, but the carriers say the immunized alliance “will create a comprehensive, fully integrated network able to serve thousands of city-pairs in North America and the South Pacific.”

The DOT had tentatively denied the carriers’ immunity request in September, but says it changed its mind based on revisions and updates provided by the carriers. Reversals of tentative decisions are rare, but the Australian government has been lobbying to have the preliminary rejection overturned and the department already had signaled it was strongly reconsidering the proposal based on the changes being made. Australian regulators earlier approved immunity.

In deciding it should allow immunity, DOT says the revised application “demonstrated that the alliance would produce sufficient public benefits to justify a grant of immunity without diminishing competition.”

The revised application is an improvement, DOT says, because the Virgin Blue Group expanded the scope of the alliance to include service to more passengers. It also completed an upgrade of its reservations system to ensure compatibility with Delta’s system, which will give consumers a more seamless travel network, DOT adds.

The carriers also said they would serve more cities and offer more capacity at the start of their alliance than they originally proposed, providing more benefits to consumers at the outset, DOT says.

In a filing with the DOT in April, Delta and the Virgin Blue Group promised to operate at least their “historic” levels of service. For Delta, that means seven weekly Boeing 777 flights during the peak season, and six off-peak flights between U.S. and Australian points. For the Virgin Blue Group, it means 14 weekly 777 flights during the peak season and 11 during off-peak

The capacity commitment extends for two years beyond immunity approval, and the peak schedule must operate for at least six months of the year. Delta is permitted 10 annual roundtrip cancellations and Virgin Blue 20.

The commitment, however, is not expected to apply if certain outside events limit demand in this market. These events include West Texas Intermediate oil prices rising above $120 a barrel, economic crises that cause major falls in the U.S. or Australian stock markets, natural disasters, and terrorist attacks.