Jetstar might get its wings clipped by Bonza

QANTAS’ low fares partner has the most to fear from the entry of new budget carrier Bonza as it “tests the market” on a couple of routes also flown by Jetstar.

RBC Capital Markets analyst Owen Birrell sounded the warning, in the wake of Bonza’s regulatory approval to begin commercial flights in Australia.

The Civil Aviation Safety Authority cleared the USowned operator for takeoff on Thursday after an exhaustive nine-month assessment and validation process.

In a note to investors, Mr Birrell said Bonza would bring headwinds for Jetstar and Qantas, despite deliberately targeting routes with little or no competition.

“In our view Bonza is selling themselves as an operator that sits somewhere between Jetstar and QantasLink/Rex, given they are a discount airline that will service what they see are underserviced and in some cases regional destinations and routes,” Mr Birrell said.

He expected it would be Jetstar that “slowly felt the pinch” from Bonza, which has promised basic fares as low as $50 for flights of about one-hour duration.

“Initially Bonza will only be competing directly with Jetstar as the discount operator on isolated routes out of Melbourne (to the Sunshine Coast and Newcastle),” said Mr Birrell.

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

In the event Bonza is able to make a success of those routes, the airline would likely grow their network and compete on a larger scale with Jetstar, Mr Birrell said.

“That will place increased pressure on ticket pricing which Jetstar has been able to benefit from over the last 12 to 18 months,” he added.

RBC Capital had a “perform rating” for Qantas shares with a target price of $7.25.

Shares in Qantas climbed 0.8 per cent to $6.47 while Rex fell more than 1 per cent to $1.44 on Friday.

Bonza is owned by the Miami-based 777 Partners, described as “an alternative investment platform”.

As well as Bonza, the firm owns Canadian ultra low cost carrier Flair Airlines and also leases planes and supports more than 100 carriers through its technology platforms. Late Friday, Bonza was yet to put any flights on sale through its mobile phone app despite expectations the airline would begin services within weeks.

The carrier has three aircraft in Australia, all Boeing 737-8s, but plans to expand its fleet to eight jets in its first year of operations.