Qantas's strategy to co-ordinate its flying operations with airline investments in Asia jumped another hurdle yesterday when the Australian competition regulator gave the flying kangaroo the green light to work closely with Singapore-based Orangestar.

A draft determination by the Australian Competition and Consumer Commission proposes to give Qantas the go-ahead to co-ordinate flying and other activities with Orangestar, the holding company for Jetstar Asia and Valuair.

Qantas owns 44.5 per cent of Orangestar and wants to link the low-cost Asian carrier with its mainline operations as well as Jetstar International services as they come on line from later this year.

The move was strongly opposed by Singapore Airlines-backed Tiger Airways, which argued it was anti-competitive and asked the ACCC to either reject it or impose a number of conditions.

But the ACCC said the tie-up would result in a net benefit to the public, noting there was limited overlap on routes operated by Qantas and Orangestar and it did not expect extensive future competition between the two.

"The ACCC is satisfied that the proposed arrangements are likely to result in a net benefit to the public," the draft determination said. "In particular, the arrangements will increase the efficiency in the operation of Qantas and Orangestar businesses and will enable both airline groups to offer more cost-effective, multi-destination packages to consumers."

The ACCC is proposing to grant the authorisation for five years on condition the airlines do not withdraw from overlapping routes or allocate existing capacity to those routes.

They are also not allowed to enter into any agreement that prevents either airline from entering routes to or from Australia.

The latest decision comes after a conditional interim authorisation in May allowed the airlines to start work on co-ordinating marketing activities such as a joint website.

It gives a wider-ranging approval that will now proceed to a further round of public consultation before a decision is issued.

A rocky start for Jetstar Asia saw the low-cost carrier reduce its fleet of A320s and Orangestar rack up losses of $27.4 million in the six months to December 31.

Qantas chief financial officer Peter Gregg said yesterday that the Singapore investment was improving under new chief executive Chong Phit Lian.

"It's going to take a bit of time but that's what we expected," Mr Gregg said. "The strategy is still right."

Qantas has also looked at similar ventures in Indonesia, the Philippines, and Thailand to build an Asian network and offset he advantages of mid-point carriers operating out of Asian hubs.

Singapore Airlines spokesman Stephen Forshaw welcomed the fact that the approval was time-limited and required regular approval.