Could Qantas shares hit turbulence as competition ramps up?

A new budget airline will fly high in the skies soon, but will this create any turbulence for Qantas?

Qantas shares lifted 0.78% today to close at $6.47. For perspective, the S&P/ASX 200 (ASX: XJO) jumped 0.66% today. Flight Centre Travel Group Ltd (ASX: FLT) shares rose 0.51% today, while Webjet Ltd (ASX: WEB) shares climbed 2.28%.

Let’s examine in more detail what might play out for Qantas in the future.

What’s ahead?

Qantas and its subsidiary Jetstar may soon face competition from a new airline.

Budget airline Bonza has received approval from the Civil Aviation Safety Authority to launch flights within Australia.

Bonza will fly to destinations including the Sunshine Coast, Mildura, Albury, Cairns, Coffs Harbour, Melbourne, Avalon, Newcastle, Tamworth, Townsville, Bundaberg, Gladstone and Toowoomba, according to an Australian Aviation report.

However, RBC Capital Markets analysts warn new airline Bonza could place pressure on Jetstar ticket pricing. In a note quoted by The Australian, analysts said they believed Bonza was targeting a market somewhere “between Jetstar and QantasLink/Regional Express Holdings Ltd (ASX: REX)”.

Jetstar is 100% owned by Qantas and operates flights at budget prices. During COVID-19, Jetstar competitor Tigerair folded after 13 years of operation.

What’s the plan?

Initially, Bonza will test the market and then target more of Jestar’s market if this strategy is successful, the publication reported. This could place “increased pressure on ticket pricing, which Jetstar has been able to benefit from over the last 12 to 18 months”.

RBC Capital added:

Initially, Bonza will only be competing directly with Jetstar as the discount operator on isolated routes out of Melbourne.

We believe this initial small step on Jetstar’s routes is deliberate as a means of testing the market and its own operations

Despite RBC Capital’s comments on Bonza, the broker still has a $7.25 price target on the Qantas share price. This implies an upside of 7.5% based on today’s closing price.  

Meanwhile, analysts at Morgans have recently placed an add rating on the Qantas share price with an $8.50 price target.

Share price snapshot

Qantas shares have soared 30% in the last year.

Qantas has a market capitalisation of about $11.7 billion based on the current share price.

The post Could Qantas shares hit turbulence as competition ramps up? appeared first on The Motley Fool Australia.

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