It’s backs to the wall time for Virgin Blue, with the ACCC today making a draft rejection of its proposed trans-Tasman route-sharing deal with Air New Zealand, a day after the US DoT provisionally killed its plans for a trans-Pacific joint venture with Delta.

New Virgin Blue CEO John Borghetti is on two weeks’ notice to provide both regulators with compelling reasons why they should change their minds before the rulings are made final.

The medium-term survival of Virgin Blue, and airline competition within Australia and to two very important international markets, is now, ironically, at risk from bodies charged with preserving and promoting competition in the air.

Why is Virgin Blue being put back in its box? A common factor could be argued to arise from clear signs that the competition policy and regulation environment in the US and Australia  has recently gone cold on the sorts of alliances and route-sharing deals that have delivered anti-competitive benefits to establishment airlines that might otherwise been much diminished by new ideas from low cost upstarts such as Virgin Blue, Southwest and Ryanair and the no-tax carriers such as Emirates or Etihad.

Unfortunately for Virgin Blue, it doesn’t have the cushion of continuing deals such as the Qantas/British Airways joint services agreement that the ACCC has never been willing nor game to take down.

The legacy of market stitch-ups that restrains competition can only grow stronger if the newer entrants are sacrificed on the altar of latter-day purity in the pursuit of raw, unaligned competition between airlines.

It is interesting to speculate on where the US and now Australian draft determinations will leave Australian consumers if incumbent marketing muscle now asserts itself over Virgin Blue.

The Australian domestic market, such as the trans-Tasman routes, is open to all entrants. Singapore Airlines could choose to fly every combination between the east coast capitals and the main NZ cities tomorrow with $10 fares by extending all its services into Australia to tag flights to NZ.

Emirates does this already, and while not at $10 fares, at prices that undermine those of Virgin Blue, Air NZ, Jetstar and Qantas in seats and freight.

The triangular coverage of the open-skies agreements that now apply between Australia, Singapore and the US mean that there is no obstacle to either Singapore Airlines, or a Singapore-based Qantas Jetstar subsidiary, flying any amount of capacity across the Pacific, or Tasman, as soon as they have the jets to do it, and the cash reserves to handle an Armageddon-style fare war.

It means that taken to the legally possible limits, the harsher pro-competitive settings of the ACCC and the DoT will foster unprecedented benefits for travellers in the short term, and then kill them stone dead.

ACCC chairman Graeme Samuel is believed to remain the guest of the Qantas Chairman’s Lounge. He was asked this morning if it was appropriate that he continue to enjoy the benefits of that exclusive club and its hospitality at a time when he is making decisions that affect Qantas and its main Australian competitor.

Samuel is a man of integrity, and can be expected to resign from the Chairman’s Lounge.