Ryanair, Europe's largest airline, plans to revive a €1 billion (£800 million) bid for Aer Lingus as part of a wave of consolidation in European aviation.

The budget carrier said that the worsening economic climate and high fuel costs could force European competition regulators to adopt a more flexible attitude towards mergers.

The European Commission blocked an attempt by Ryanair to buy Aer Lingus last year amid fears that the combined group would dominate the Irish market.

Ryanair still owns 29.8 per cent of Aer Lingus, but its rival's share price has fallen sharply since the first takeover attempt.

Aer Lingus was trading at €1.54 in Dublin yesterday, down from Ryanair's initial offer of €2.80, which was made two weeks after Aer Lingus was privatised in 2006.

Ryanair believes that the European Commission will be forced to change its stance on airline mergers in the coming months as more carriers seek survival deals.

The Commission will have to ratify a number of deals in the next six to twelve months, including a tie-up between British Airways and American Airlines, and BA and Iberia.

Alitalia, the Italian national airline, is also on the market and is being courted by Air France or Lufthansa, the German carrier.

A spokesman for Ryanair said: “We are adopting a wait-and-see approach because there is a lot of consolidation coming and that may force the EU to change its position.”

Aer Lingus said last week that it had made a loss of €20.2 million in the first half of 2008 and it added that this could increase next year. It spoke of making “fundamental changes” to its cost-base after falling into debt, which could lead to a radical staffing overhaul.

Dermot Mannion, chief executive of Aer Lingus, said: “The competitive landscape has not changed one bit since Ryanair made its first approach. The Commission rejected their bid because of the market concentration Ryanair and Aer Lingus would have in Ireland. What happens elsewhere in Europe will not change that dominance.”

Ryanair said that its rival should scrap fuel surcharges because it is losing customers on long-haul traffic. Michael O'Leary, Ryanair's chief executive, called the surcharges “unjustified”.

The former state-owned airline's fuel surcharges have increased six times since October 2006, while the long-haul load factor fell from 77 per cent to 67 per cent in the first half of 2008.

The Irish Government still has a stake of about 25 per cent in Aer Lingus and its employees continue to own a significant stake.

Management at the budget airline derided as “uneconomic” Aer Lingus's decision to set up a base in Belfast, where its average load factor was about 50 per cent in the first half of 2008.

Ryanair also criticised Aer Lingus's management for increasing its directors' fees from €17,500 a year to €45,000 a year between 2007 and 2008.

Stephen McNamara, a spokesman for Ryanair, said: “As the current wave of European airline mergers and takeovers gathers pace, it is clear that Aer Lingus is being marginalised on the sidelines of European aviation, losing money, with no apparent strategy to return to profitability.

“Its independence strategy, which over the past year has delivered higher fares, a sixfold increase in fuel surcharges, route closures in Ireland, and a lurch to substantial losses has failed its customers, its staff and has failed to secure Aer Lingus's long-term viability.”

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