Air New Zealand has over the half the market to Australia

The rejection follows a similar decision by the Australian competition authorities in September, and looks likely to be the final straw for the merger proposals.

If it had gone ahead, the New Zealand Commerce Commission (NZCC) warned, prices might have risen by almost a fifth.

The higher prices might deter up to 190,000 New Zealanders from travelling abroad each year, it said.

There are simply too many airlines in the world today Geoff Dixon, Qantas chief executive

The airlines said they still felt the case for the merger was solid, and would seek grounds to appeal.

"We still believe an alliance between Qantas and Air NZ is in the best interests of aviation in this region, and would deliver significant benefits to travellers and tourism," said Qantas chief executive Geoff Dixon.

"There are simply too many airlines in the world today, and it is inevitable that there will be further pressures towards consolidation and some very large and powerful groups could emerge."

Concerns

The plan was for Qantas to pay NZ$500m for a 22.5% stake in Air NZ, and for the two to share routes to, from and within New Zealand.

Flights from Emirates and low-cost airline Virgin Blue would ensure that consumers did not lose out, Qantas and Air NZ said.

And they pointed out that neither had ever made a profit competing on the domestic market in New Zealand.

But that was not enough for the NZCC.

"The competition provided by these carriers is not sufficient to allay all of the commission's concerns," said NZCC acting chairwoman Paula Rebstock.