UK competition regulator, the Office of Fair Trading, has referred Ryanair's minority 29% shareholding in Aer Lingus for detailed investigation by the Competition Commission.
The OFT says it has now concluded that Ryanair's stake "may give it the ability to exercise material influence over the commercial policy of Aer Lingus and that there is a realistic prospect that its stake has resulted, or will result, in a substantial lessening of competition on a number of Ryanair and/or Aer Lingus routes between the UK and Ireland".
Concerns centre on Ryanair's ability to weaken Aer Lingus as a competitor and discourage investment from other airlines in the Irish flag carrier. Ryanair may also be discouraged from competing too fiercely against Aer Lingus, it says, safe in the knowledge that it would gain a proportion of lost passenger revenue through its shareholding.
Amelia Fletcher, OFT chief economist and decision maker in this case, says: "This OFT investigation has been into the acquisition of a minority stake in Aer Lingus. We are concerned that Ryanair's shareholding places it in a position to influence the commercial policy and strategy of Aer Lingus in a number of different ways that could dampen competition to the disadvantage of UK passengers."
Aer Lingus chief executive Christoph Mueller says: "Today's decision by the OFT supports our view that Ryanair's shareholding in Aer Lingus is contrary to the interests of consumers and the majority of our shareholders.
"It is unacceptable that our principal competitor has been allowed to remain on our share register even though the European Commission blocked their hostile takeover almost five years ago.
"We look forward to co-operating with the Competition Commission in its investigation, which we are confident will result in Ryanair being ordered to dispose of its shareholding."
Ryanair lost a legal challenge against the OFT investigation on 22 May.
For its part, the low-cost carrier says it welcomes the investigation and is confident the Commission will rule in its favour.
Chief executive Michael O'Leary says: "We welcome the Competition Commission review of this six-year-old minority stake. We are confident it will find that since Ryanair has no control and no influence over Aer Lingus, the status quo will remain unchanged."