Canada's Competition Bureau has reached an agreement with Air Canada and United Airlines that prohibits them from coordinating on 14 trans-border routes but clears the way for a joint venture that excludes those routes.
The government agency, which said its deal would protect consumers, had filed an application in June to block a proposed trans-border joint venture between the airlines, saying that the partnership would monopolise key routes between Canada and the United States.
Under the deal, the airlines have agreed not to coordinate prices or the number of seats available at each price, to pool revenue or costs or share commercially sensitive information on the 14 high-demand routes.
They can coordinate on other routes where their joint venture is not seen harming competition substantially.
The bureau also said it will appoint an independent monitor to ensure the airlines comply with the terms of the agreement.
The two airlines have three existing agreements and want their joint venture to merge flight operations between Canada and the United States, the bureau said.
Air Canada, the country's largest airline, said it was pleased with the decision and the preservation of its long-standing alliance with United.
"In addition, this agreement provides the flexibility to implement a Canada-US trans-border joint venture, an increasingly common practice in the global aviation industry," said Air Canada's chief commercial officer Ben Smith in a statement.