Easyjet issued a challenge yesterday for the crown of Europe's leading low-cost airline, saying it was in advanced talks over the acquisition of no-frills British rival Go.

EasyJet, which was introduced in 1995 by entrepreneur Mr Stelios Haji-Ioannou, said it was in exclusive negotiations with 3i group, the private equity group and Go's controlling shareholder, over a potential sale.

Informed figures in the industry believe the deal is worth about £500-£600 million sterling (€811-€973 million).

If successful, the acquisition could push European low-cost pioneer Ryanair from its spot as the continent's leading no-frills carrier.

Ryanair's chief executive, Mr Michael O'Leary, said he did not regard Go and EasyJet as "low-fare carriers" as their business models were different.

He said: "Would we be concerned or threatened in any way by the two of them coming together? Not in the least. We wish them God's speed."

From a strategic perspective, Mr O'Leary said it might be better to have three large carriers in the business instead of two.

While the merged entity would be the same size as Ryanair on the operational side, he believed its valuation would be less than half that of Ryanair.

Go, which was established by British Airways and started flying in 1998, was sold in June last year for £100 million sterling to a management buyout supported by 3i, which, together with funds it controls, holds a 67.5 per cent stake.

Go had announced plans for an initial public offering on the London stock market this year, with some of the proceeds to be used for an expansion of its fleet.

Mr Haji-Ioannou, who last month announced plans to step down as chairman of EasyJet next year, said talks had been going on with 3i "for a few months".

He said he did not know what the structure of any combined group would be.

"The main message for the customer is that the combined entity will still have as its main task to compete with the high-cost airlines," he said.

Mr Chris Tarry, transport analyst at Commerzbank Securities, said he was surprised at the move, given expectations of EasyJet's organic growth.

He also questioned the strategic benefits to be achieved from a combination of EasyJet and Go.

News of the Go bid comes as EasyJet expands its European short-haul service, in the face of stiffening competition from its low-cost British rivals.

The airline, which already has bases at Amsterdam, Holland, and Geneva, Switzerland, is expanding at London Gatwick in addition to its original hub at Luton.

The carrier is adding several routes to Paris, which it wants to turn into one of its main European locations.

Ryanair, which began operations in Dublin in 1985 and introduced low-cost short-haul travel in Europe, is establishing a deeper foothold in the continent.

In February, the group announced plans to establish operating bases in Italy, Scandinavia and France.

EasyJet shares closed up 21p, or 4.7 per cent at 472p. Ryanair's shares closed up 7½p, or 2 per cent, at 382½p.