$5 fares? These European airlines could profit from what will be the biggest price war in history.

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Get ready for one of the biggest airline price wars in history.

That is the warning from analysts at Citigroup, who say that any airline with a low cost base and healthy balance sheet will head straight into a summer price war once coronavirus travel restrictions ease and passengers start to book their holidays.

“The airline investor backdrop is trapped in a seemingly endless cycle of discussions on backward-looking cash burn analyses, working capital risks, convoluted hedging positions and the medium-term threat of a demise in corporate travel budgets,” Mark Manduca, associate director of Europe, the Middle East and Africa research at Citi, said in a research note on Wednesday.

But he thinks that, as investors gradually start to talk about recovery, the market is ignoring a significant threat.

“The whole summer schedule needs to be filled in the space of one to three weeks and the only way airlines can get people flying short-haul is to heavily discount prices,” Manduca said.

“Simply put, any demand rebound will be initiated by one of the biggest price wars in history.”

Manduca pointed to recent comments made by Ryanair boss Michael O’Leary, who said the Irish budget airline assumes European flights will stay grounded until a “limited” resumption in June, after which it expects intra-European travel to pick up, fueled by steep discounts on last-minute holidays between July and August.

“Whether it’s €9.99, €4.99, €1.99 or 99 cents per seat, we almost don’t care — our critical thing in the short term isn’t to make money, it will be to get our pilots and cabin crew back flying and the aircraft back in the air,” O’Leary told the Reuters news agency.

That scenario might work for airlines like Ryanair Holdings RYAAY, -0.44% and Hungarian budget carrier Wizz Air WIZZ, +0.07%, whose balance sheets appear better placed than some of their rivals to withstand the crisis.

Wizz Air, which is flying just 3% of its capacity, said it had €1.5 billion in cash at the end of March 2020. While analysts at Davy Research recently said Ryanair had “one of the strongest balance sheets in the industry,” citing its year-end cash position of €3.8bn and that 77% of the group’s owned fleet are debt-free.

“Airlines are now behaving like a commodity sector. The lowest price needs to be met with the lowest cost and Ryanair has the most collateral on its cost curve to flood the market with seats and grab market share,” Manduca said.

For British Airways owner IAG IAG, -0.04% and easyJet EZJ, -2.16%, however, a price war could spell bad news. The two airlines may need to tap investors for fresh cash via rights issue, adding to the already large tally of airlines needing capital.

“As we have therefore argued before, any optimism toward the European airline sector at this stage, is premature,” Manduca said.

Lufthansa looks worst placed to cope with a summer price war. The German carrier has grounded around 700 of its 763 fleet of planes and is operating at just 5% of its normal seat capacity.

Chief Executive Carsten Spohr last month warned that “the longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid.” The International Air Transport Association said on Thursday up to $200 billion could be needed world-wide to rescue airlines.

Investors have also raised a number of concerns about how airlines will be able to resume flights while adhering to social distancing measures.

Last week, easyJet said it was considering leaving the middle seat empty in a move aimed at encouraging passengers to fly again. “How does one go to a toilet in such an empty middle seat scenario? What about the seat in front and behind the passenger,” Manduca asked.

Manduca also said airlines could struggle to make money if their planes are just 66% full.

Another concern is that the humidity levels and air conditioning systems on airplanes — which are “the perfect breeding ground for this virus” — could also deter passengers from booking flights. They may need to be screened before boarding, and if they are tested positive, its isn’t clear if airlines will give them instant refunds.

Investors are also asking how airlines will start making cash again from ancillary revenues. For instance, will they be allowed to sell food on board and how will passengers be able to eat if they are required to wear masks?

Finally, there is the key issue of borders and whether there will be limited clear directives from Brussels on how to open them up across the 27-country European Union bloc as lockdown restrictions are lifted. “Will different governments have different policies and quarantine rules upon arrival and departure?” Manduca said.

On March 17, EU leaders agreed to immediately impose travel restrictions on most foreigners entering Europe for at least 30 days to limit the spread of the new coronavirus. The plan exempts long-term EU residents, diplomats, some health-care and transport workers.

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