INVESTOR: Recent press reports concerning the airline sector point to increased competition in the low-cost segment of the market.

According to reports, Air France is looking to transform its Irish subsidiary, CityJet, into a European low-cost carrier.

A new start-up company, FreshAer, is expected to start operations in July with five leased Boeing 757 planes. It plans to operate routes between Ireland and the UK, and to offer some services to continental European destinations.

These announcements would seem to be part of a general trend towards increased low-cost competition throughout Europe. Such competition is coming from two sources.

Firstly, several incumbent carriers are trying to transform some or all of their activities into a low-cost model. For example, Aer Lingus has made great strides in reducing its cost base and in offering its customers much lower airfares.

Secondly, a number of low-cost start-ups are occurring as entrepreneurs try to jump aboard the low-cost air travel bandwagon.

Investors in Ryanair will be closely watching the success or otherwise of these new entrants.

Ryanair stands out as one of the major corporate and stock market success stories of recent years. It now has a route network covering most of Europe that rivals any other European airline.

It was very quick to exploit the potential of the internet by widening its market reach and cutting its distribution costs. It has also been adept at selling additional services such as car hire and travel insurance to its online customer base.

This rapid growth has enabled the airline to fully exploit its economies of scale and to copperfasten its position as the lowest-cost airline operator in Europe.

This rapid growth has been recognised in the stock market, where the company's share price has risen dramatically over the past five years. Over this period the share price has almost quadrupled and even over the past six months Ryanair shares have risen by 16 per cent.

This is at a time when equity markets in general have been declining and many airline stocks in particular have fallen precipitously. The net result of Ryanair's success and the woes of the rest of the airline sector is that, measured by market capitalisation, Ryanair is now Europe's largest quoted carrier. Ryanair's market capitalisation of 5 billion compares with €3.5 billion for Lufthansa, 2 billion for British Airways and 2.2 billion for Air France.

Over the past three months, the gap between Ryanair and its European rivals has widened even further. This period covers the build-up to the war in Iraq and the war itself, which led to a worldwide fall-off in air travel. This uncertainty had no effect on the demand for Ryanair's product offering but did have a negative impact on most other airlines.

This was reflected in the stock market, with share price declines across the airline sector. Over the past three months, KLM's share price dropped by 18 per cent, British Airways fell by 8 per cent and Ryanair's main low-cost competitor, EasyJet, saw its shares fall by 9 per cent. Over the same period, Ryanair's share price enjoyed a rise of 1.5 per cent.

As Ryanair becomes bigger, its ability to grow rapidly will naturally become constrained. Clearly, the company's initial period of development when it grew from a small regional airline to a Europe-wide airline is over.

Future growth will inevitably be slower although there is still enormous potential for further growth across Europe.

In addition, the embracing of 10 new countries into the EU will in time create further opportunities for Ryanair. Therefore, ongoing expansion across Europe in the demand for low- cost air travel is likely to offer Ryanair plenty of room to grow.

Judging Ryanair's medium to long-term growth prospects, therefore, mainly involves assessing the strength of the threat from existing and new competitors. Such competitive pressures will almost certainly intensify in coming years.

Nevertheless, Ryanair's tried-and-tested business model will be very hard to match and it is difficult to see it losing its position as Europe's number-one low-cost carrier. From an investment perspective, although the initial period of explosive growth is now over, the medium to long-term growth prospects still look very healthy.