Australian air travellers can breathe a sigh of relief this afternoon after Virgin chief Sir Richard Branson announced the rejection of a $250 million offer for Virgin Blue by Air New Zealand, keeping airfare competition alive in our skies.

The deal would have brought Virgin Blue under the same roof as its rival Ansett, effectively ending discount airfares and sentencing Australia to a return to the two-airline market that for decades gave us the highest domestic airfares in the world.

Branson said: "Although we could have walked away with a $250 million net profit on our investment, I felt it would be selling out both the Australian public and our delightful staff at Virgin Blue. Instead we will invest many millions more in expanding our fleet and flying new routes."

However, Virgin remains concerned that competition laws are working against it and Sir Richard said he has met with Professor Alan Fels of Australian Competition and Consumer Commission who has confirmed to him that airline competition is a high priority. Branson is confident there will be moves after the federal election to beef up competition laws to prevent predatory pricing and capacity dumping by Qantas and Ansett.