Croesus/The Investor's View:  Before the Ryanair IPO, there were no airline stocks quoted on the Irish Stock Exchange. In a European context, the Irish exchange was not unusual given that the European airline industry consisted mainly of flag carriers owned by governments.

However, the opening of Europe's skies to free competition has been one of the big success stories of EU industrial policy.

For a long time British Airways was the largest of a short list of quoted European airlines. Now the majority of European airlines are quoted, with the largest being Air France/KLM, Lufthansa and BA.

With Aer Lingus now listed on the Irish market, the airline sector is well represented on the home stock exchange.

Irish investors have a choice of domestic airline stocks and, if the London-quoted EasyJet and BA are included, some interesting comparisons can be made. Measured by market capitalisation, BA is the largest company with a market value of £4.8 billion followed by Ryanair's €3.7 billion.

EasyJet comes in with a market capitalisation of £2.2 billion, followed by Aer Lingus at €1.4 billion. Each of these four companies offers investors uniquely differing investment propositions. Ryanair and EasyJet are the leading low-cost carriers in Europe and both are expanding aggressively.

Their entire focus and business strategy is on the European short-haul market.

BA is probably the most successful of the privatised European flag carriers and its strategy for growth relies on its extensive long-haul network. The Aer Lingus strategy straddles short haul and long haul and it is therefore difficult to categorise it neatly.

Of the four companies, EasyJet is probably least well known in Ireland. This reflects the fact that it does not fly out of airports in the Republic as a result of its policy of avoiding direct competition with Ryanair where possible. In 2006, EasyJet carried 33 million passengers and this is forecast to grow to 37 million passengers in 2007.

This compares with Ryanair's passenger numbers of 42.5 million for its 2007 fiscal year.

Although EasyJet, along with Ryanair, pioneered the low-cost model of air travel in Europe, its approach to costs is not quite as ruthless as Ryanair's.

EasyJet flies to primary airports in contrast to Ryanair's focus on secondary airports. EasyJet's unit staff costs are higher, reflecting better customer service-level standards and it does not squeeze as many seats on to each aircraft as Ryanair.

As a result, its costs per passenger are higher than Ryanair's, although they are lower than those of Europe's flag carriers.

EasyJet has also been slower than Ryanair to boost ancillary revenues from items such as bag charges and on-board sales.

However, over the past two years senior management has intensified efforts to bring unit costs and ancillary revenues closer to those of Ryanair.

In 2002, the company placed an order for 120 Airbus aircraft on very favourable terms. The fleet is rapidly modernising and becoming more concentrated on Airbus as older, leased Boeing planes are retired.

This will lead to lower maintenance costs and improved fuel efficiency.

Along with the airline sector, the EasyJet share price has fallen sharply from its peak and is now down 15 per cent on the year to date. This leaves it trading on a price/earnings ratio of approximately 15, which looks attractive if the company succeeds even partially in closing the cost and ancillary revenues gap with Ryanair in coming years.

Aer Lingus has also made great strides in bringing its cost base down and it is now possibly the most efficient of the privatised European airlines. Having to compete with Ryanair on its home turf means it must become more competitive.

For 2006, the company generated €998 million of passenger revenues, with short haul accounting for €684 million. Unlike BA, Aer Lingus is expanding its short-haul services but is faced with stiff competition from Ryanair on most of its routes. Long haul accounted for €313 million of passenger revenues and it is here that Aer Lingus is pinning its long-term growth prospects.

The US-EU Open Skies agreement is due to come into force on March 31st, 2008, and the new environment will offer opportunities for growth. In addition, the Middle East and South Africa offer opportunities for long-haul growth.

Implementing this strategy poses many challenges and is risky. Aer Lingus is expanding its fleet at a time when the discounts on list prices offered by the manufacturers are much lower than a few years ago.

On June 6th, management announced its long-haul order for 12 new Airbus aircraft worth €2.4 billion at catalogue prices, with deliveries to begin in 2009.

At a share price of 260p, a good investment argument can be made for investing in Aer Lingus, as there is considerable upside if its long-haul strategy is successful. However, it will be several years before this becomes clear.

From an investment perspective, Croesus takes the view that, of the four airlines, Ryanair still offers by far the best medium-term risk/reward investment trade-off.