The deal means the two airlines will have to fend for themselves

The decision ends a two-year effort by the airlines to fight off low-cost carriers by combining forces.

Both countries' competition watchdogs had rejected the deal, arguing that the reduction in consumer choice had outweighed the benefits.

Although the parties have 20 days to appeal, Qantas said it now wanted to "move on".

The decision "ignores major structural changes" in the industry worldwide, said the Australian airline's chief executive, Geoff Dixon.

"Today's decision... contrasts with the marked trend toward consolidation."

It is disappointing that Air NZ and Qantas were not allowed to introduce some rationality into a market that has been anything but rational Air New Zealand

KLM and Air France had been allowed to merge, he pointed out, while British Airways had sold its 18% stake in his company earlier in September so as to ease its participation in Europe's "inevitable consolidation".

The deal would have given Qantas a 22.5% stake in Air NZ in exchange for NZ$550m (US$363m; �202m), and led to co-operation on routes between the countries and within New Zealand.

Threat

Both Air NZ and Qantas have experienced the same pressure from budget carriers as their peers elsewhere in the world.

Virgin Blue and Emirates Air, among others, are flying many Australasian routes.

Qantas has launched two low-cost carriers of its own to help it hang onto its market.

For Air NZ, the final collapse of the proposed deal threatened its long-term survival, the airline said.

"It is disappointing... that the court has not allowed Air NZ and Qantas to take this opportunity to introduce some rationality into a market that in recent years has been anything but rational," it said in a statement.

'Detriments'

But the Commerce Commission in New Zealand had disagreed, finding negative effects of between NZ$195m and NZ$466m.

The court concurred.

"The appellants have not shown the Commission to have erred in concluding that the likely public benefits of the proposed alliance would not outweigh the likely efficiency detriments," it said.