The rising popularity of low-cost airlines may undermine the profitability and viability of cross- channel ferries, analysts have warned. The Ireland-to-Britain car ferry market contracted by 4 per cent last month, while the Irish Continental Group (ICG), owner of Irish Ferries and one of the sector's biggest operators, reported an 8 per cent fall in business.

Mr Stephen Furlong, analyst at Davy stockbrokers, said low-cost airlines were eating into the sector's traditional customer base. "Not just Ryanair but EasyJet, BMIbaby, MyTravel and Buzz are all setting up bases in the UK regions and providing competitive alternatives."

While the freight shipping market remains buoyant, with the sector reporting a 2 per cent rise, ICG experienced a 0.75 per cent fall. Gulf War fears and volatile oil prices posed a further threat to the fortunes of the ferry sector, said Mr Furlong. Davy's sees downside risks to 2003 forecasts of ICG stock but acknowledged that cash- generation remained strong.

ICG stock rose by more than 20 per cent in October on director buying and share buyback activity and the firm posted before-tax profits of €3.3 million for the first half of 2002, compared to €1.7 million in the same period last year.